FIji Development Bank ANNUAL REPORT 2010 VISION To be a dynamic financial service provider in the development of Fiji.
MISSION We provide finance, financial and advisory services to assist in the economic development of Fiji and in particular the development of agriculture, commerce and industry.
COPRPORATE OBJECTIVE To be a profitable and self-sustaining financial institution.
STRATEGIC OBJECTIVES 1. To continue to be a sustainable Development Financial Institution. 2. To increase market share in the focused areas: • Resource-based market sectors • Small, medium enterprise market 3. To introduce micro-loan banking services as a product service that caters to the poorer sector of the community. 4. To operate a licensed credit institution. ABOUT US The Fiji Development Bank was established under contents the Fiji Development Bank Act (Cap 214) on 1 July, 1967. The Bank is an autonomous statutory body, the Letter to the Minister for Finance operations of which are controlled by a Board of 2 Directors appointed by the Minister of Finance. Executive Report Under the Act, the Bank provides finance for 3 projects that contribute to the development of the Board of Directors Fiji economy and improves the quality of life for the people of Fiji. Loan funds are provided for agricultural, 7 micro, small and medium, as well as corporate Corporate Governance enterprise projects. The Government also uses the FDB 9 as a financial instrument in its development projects/ Executive Management 1 plans and special assistance programmes that may be necessary from time to time. 12 Fiji Development Bank Organigram Over the years FDB has introduced a range of loan packages and services aligning it with its strategic 13 objectives and customer demands. At the same Financial Year in Review time, the FDB has the challenging task of matching 14 its competitiveness level with that in the banking and Operational Review finance sector. 20 The Bank has played a significant role in developing Risk Management the various economic sectors of the country and believes in a strong corporate social programme 25 which it undertakes through Money $mart™ and Corporate Social Responsibility Invest $mart™, a financial literacy programme in all Fiji 30 secondary schools as well as the annual Small Business Financial Report Awards. 35
2010 annual report Development Bank Centre 360 Victoria Parade fiji development bank GPO Box 104 Suva, Fiji Tel: 331 4866 Fax: 331 4886
10 January 2011.
Commodore Josaia Voreqe Bainimarama Ministry of Finance Prime Minister’s Office Level 4, Government Buildings (New Wing) Gladstone Road SUVA.
Dear Sir,
I have much pleasure in submitting the annual report and accounts for the Fiji Development Bank for the financial year 30 June 2010. 2 In light of the many challenges facing Fiji’s economy, the Bank recorded a profit of $2.36 million. Although this is a decline of $1.12 million over the 2008/2009 financial year, the Bank attained this positive result through prudent spending and stringent cost control measures.
During the year, the Bank’s gross portfolio stood at $437.86 million, an increase of 1.05 percent compared to $433.26 million for the previous year. This increase is a reflection of an increase in lending to the focused sector.
The Board wishes to also acknowledge the effort and commitment of the executive management and staff of the Bank in what has been another challenging year.
Yours sincerely,
Robert G. Lyon Chairman
Branches: Nausori Rakiraki Ba Lautoka Sigatoka Labasa Seaqaqa Savusavu Nadi
fiji development bank executive report
Inclement weather resulting in flooding The Global Environment to fiscal and monetary 3 No doubt, the financial year management with special in most parts of Fiji in addition to ending June 2010 was an focus on revenue and tax Tropical Cyclone Tomas in the early extremely difficult one. As a measures, land tenure, nation, we were not spared the civil service, public part of 2009 badly affected agricultural from the global economic enterprises and government production including forestry and and financial crisis which related entities. As a began in mid-2007 when development financing fishing. the US sub-prime mortgage institution owned by collapsed. The impact of Government, our Bank’s the crisis on employment, corporate strategies and consumer confidence, action plan will always demand and income level reflect the need and focus of was overwhelming. We Government. significantly suffered when our visitor arrivals and foreign Inclement weather resulting exchange earnings fell in in flooding in most parts of the last two financial years. Fiji in addition to Tropical Notably, our remittances Cyclone Tomas in the early from abroad also dropped. part of 2009 badly affected agricultural production Domestic Reforms including forestry and fishing. The Government’s short to mid-term activities The Reserve Bank of Fiji evolved around the 10 point also took the bold step to economic plan introduced devalue the Fijian dollar in the 2009 National Budget to ease pressure on the Address. Reform was one balance of payments. of the main agenda items The devaluation of the of Government - reforms Fijian dollar against other
2010 annual report currencies made our exports of lending to the agricultural Microfinance the Ministry of Education in and country as a tourist sector, our experience in Supporting entrepreneurship 2007 under the Commercial destination more attractive. lending to this sector is poor through small or micro credit Studies Curriculum for third Further cuts were made client serviceability and low loans has always been a formers in 162 secondary on interest rates including rate of recovery. focus for the Bank ever since schools throughout Fiji. The repurchase of bonds to its inception in 1967. In March extension also covers the boost liquidity in the banking Our Business 2009, the Board approved inclusion of Invest $mart™ for system as well as to limit the Notwithstanding the difficult the reinstatement of the fourth formers in 2011, further effects of financial stress, operational environment, Micro Credit Scheme (MCS expanding the provision revive investor confidence the Bank posed a return on -formerly known as the Small of financial literacy in all and support local demand. equity of 2.15% in 2009/2010 Rural & Agriculture Scheme) secondary schools. compared to 3.35% in and the implementation of In terms of economic 2008/2009. The actual an additional loan facility, Our Risks performance, GDP growth profit for the year was $2.36 the Agri-finance Scheme One of the principles was estimated to contract million derived from total (AFS) under the Social adopted for effective by 3% in 2009. assets valued at close to Banking Facility (SBF). The development financing is $380MM. To reverse the SBF is designed to help risk management. We have Our Mandate declining profitability trend, alleviate poverty and uplift a process in place called FDB’s operations are it would mean securing the living standards of the Enterprise Risk Management governed by the FDB Act cheaper source of funds least advantaged members (ERM). The process involves and the 2009 – 2011 Strategic and rebalancing the credit of the community. Under this identifying, managing, Plan. Within this framework, portfolio to attract high value facility, the Bank provided communicating and the activities are designed corporate customers. loans to clients who would controlling risks - credit risk, 4 to stimulate the promotion not have had access to liquidity risk and operational and development of natural The Bank’s interest income credit otherwise because risk across the Bank’s entire resources, transportation for the year stood at of insufficient equity and operations. Our primary focus and other industries and $30.36 million – a significant security. is to create and protect our enterprises in Fiji. We give reduction of 23% over the shareholder value and to special considerations and 2009 financial year whilst Under this provision, the inter-mediate risks portrayed priority to Fiji’s economic interest expenses rose by 25% Bank set aside a provision in the financial results and development with focus on over the same period. The of $3.00MM, which was existing processes. the rural and agricultural effect on the interest spread exhausted by December sectors. was significant, a reduction 2009 and the SBF suspended ERM is more like a balancing of almost 300 basis points temporarily. This did not act – to engage in risks Government’s new strategic on the previous margin. The affect lending to small without compromising loan direction includes increasing growth in income namely businesses under the various quality and profitability. Our domestic production in fees and charges and the other facilities available ERM practices are still being resource-based sectors ability to control staff costs, at the Bank. At the close refined and we hope to as a means of improving helped in mitigating a further of the 2009/2010 financial cover a wider risk spectrum domestic food security and decline in profitability. year, the SBF accounted for similar to other financial reducing Fiji’s dependency a total of 1,871 clients with institutions. on imported food products. The growth in new business borrowings of $6.65MM. This The real dilemma in our approvals for the Bank has number accounted for 28.6% Existing bank policies, development financing was also seen a steady decline of all Bank clients and 1.5% infrastructure and the expectation to achieve over the last five years from of the Bank’s total portfolio operational facilities a return on investment of $227.27MM in the 2005 respectively. (including the Management at least 10% per annum financial year, to a modest Information System) are (Government's corporate $56.78MM for the 2010 Financial Literacy being continuously reviewed target) whilst lending to a financial year. The decline is The Bank has also extended to ensure its robustness and high risk and susceptible due to a shift in the lending to 2011, its financial support resilience in the face of a area such as agriculture. focus of the Bank as directed for Money $mart™, a distressed economic climate Despite the Bank holding the by the Minister for Finance. financial literacy programme and changes in the financial biggest market share in terms initiated by the Bank and markets.
fiji development bank Our Customers experience of over 100 We value our customers; years. The depth of local without them, there is no knowledge and institutional business. Our emphasis is on memory is significant when building lifelong, profitable mixed with staff who, bring customers who will continue with them a diverse range to come back to us because of skills and intellect that of the Bank’s ability to help allows the Bank to effectively meet their needs. manage its business particular under trying Giving great value to our economic conditions. customers the Bank believes, can be attained through Our Future operational efficiency, The Bank is a key stakeholder high quality products and and development partner good customer relations. By for Fiji and her people. streamlining and simplifying The Bank will continue to internal processes and help develop and nurture procedures, the Bank works entrepreneurship and at reducing waste and businesses in the resource- saving on resources. based sector particularly, The Bank endeavours to if such enterprises help Fiji ensure customers experience towards self-sufficiency, convenient and pleasant create employment and 5 service delivered by reduce poverty. qualified and enthusiastic personnel. Meeting The Bank values the trust customer expectations and placed on it by Government requirements continues to as the shareholder and our be an ongoing challenge stakeholders to continue and all effort made to ensure to deliver development they are met. financial products to all citizens of Fiji. Our People Improving the skills, knowledge and aptitude of Bank personnel towards work is as important, if not critical to the Bank achieving its corporate objectives. Deve Toganivalu In this regard, the Bank’s Chief Executive Officer policy on further education continues to be applied equitably for staff interested in improving their academic and technical qualifications through locally based universities or tertiary centres.
The Bank has a cadre of professional bankers within its management team who have a combined lending
2010 annual report 6
fiji development bank BOARD OF Directors
Mr. John Prasad Mr. Jitoko Tikolevu Chairman Deputy Chairman
Mr. Prasad is the Acting Permanent Secretary for the Mr. Tikolevu is the Chief Executive Officer of the Fiji Islands Ministry of Finance. Prior to this he was a Project Officer at Revenue and Customs Authority. He is a graduate in the Prime Minister’s Office. He holds a Masters Degree in Business Studies from the University of the South Pacific, Fiji Business from Massey University, New Zealand and a post- and holds a Masters of Commerce in Taxation (Honors) from graduate Business Diploma from Auckland University, New the University of Auckland, New Zealand. He is also a board 7 Zealand together with a Diploma in Dairy Technology. He director for the Fiji Islands Trade & Investment Bureau. is a member of the Institute of Directors in New Zealand. He has previously served as board chair for the Fiji National Provident Fund and HFC.
Mr. Joseva Serulagilagi Mr. Manasa Vaniqi Director Director
Mr. Serulagilagi is the Chairman of the Public Service Mr. Vaniqi is the Permanent Secretary for the Ministry of Commission. He is also the Chairman of the Tailevu Provincial Provincial Development & Multi-ethnic Affairs. Prior to this Council and the Rewa Co-operative Dairy Company he was a Deputy Secretary in the Ministry of Home Affairs. Limited. He holds a Bachelor of Arts in Sociology/Public He holds a Diploma in Business English from Manchester, Administration and a Diploma in Rural Development from the United Kingdom and a Diploma in Administrative Studies University of the South Pacific, Fiji. He also holds a Certificate from the University of the South Pacific, Fiji. He also has vast in Development Planning from Bradford, United Kingdom. He experience in the civil service. is a retired civil servant with a career spanning over 34 years.
2010 annual report BOARD OF Directors
Dr. Richard Beyer Mr. Ilaisa Cavu Director Director (September 2008 – August 2009)
Mr. Cavu is the Chief Executive Officer of the Agricultural Dr. Beyer was the Permanent Secretary for the Ministry of Marketing Authority. He holds a Diploma in Hotel Agriculture and Primary Industries. He is a graduate of Management from the Fiji Institute of Technology, Fiji. Prior to Strathclyde University, Scotland where he obtained his this he was Rooms Division Manager at the Outrigger Resort. degree in Food Science. He graduated with a Doctor of He has 30 years work experience in the hotel and tourism Philosophy from Otago University, New Zealand. He also 8 industry. holds a post-graduate Diploma in Management and Marketing. He has broad experience in agriculture and management.
Mr. Mason Smith Mr. Isikeli Tikoduadua Director Director
Mr. Smith is the Permanent Secretary for Agriculture. He Mr. Tikoduadua is the Chief Executive Officer for HFC. He holds a Masters of Management in Defense Studies from holds a Masters in Business Administration from the University the University of Canberra, a post-Graduate Certificate in of the South Pacific. His professional affiliations include Diplomacy and is also a Fellow of the Asia Pacific Centre for Honorary Fellow of the Fiji Institute of Bankers, Financial Security Studies in Hawaii. Prior to his recent appointment, Fellow of the Financial Services of Australasia and Associate he served as Counselor/Acting Head of Mission with the Fiji Fellow of the Australian Institute of Management. He has Mission to the United Nations (2007-2009) and as an officer in vast experience in the banking and financial sector having the Fiji Military Forces (1985-2007). previously worked with the ANZ Bank (Fiji).
fiji development bank Corporate Governance
The Bank’s Corporate Governance Corporate Governance The Code of Corporate 9 The Fiji Development Governance determines Framework is designed to encourage Bank believes that good how the Bank: the efficient use of resources as well as corporate governance • Protects the interest of based on fairness, depositors, suppliers of accountability for the stewardship of transparency, integrity, funds and creditors; those resources, which is an essential disclosure and accountability • Sets Corporate adds value to the Bank and Objectives; ingredient in maintaining corporate its business. • Runs the daily operation success and sustainable economic of the business; The Bank’s Corporate • Is accountable to growth. Governance framework is the Government as the designed to encourage the shareholder; and efficient use of resources as • Is in compliance with well as accountability for applicable laws and the stewardship of these regulations. resources. The framework specifies the distribution of The Board of FDB rights, responsibilities and Members of the board are obligations of the different appointed by the Minister participants including the of Finance and operate board, its sub-committees, under the provisions of the Fiji individual directors, Development Bank Act (Cap management, government 214). (as the only shareholder) and other stakeholders including The board appoints the employees, customers of the Chief Executive Officer and Bank and the community at reviews his performance. large. The board also endorses the appointment of general
2010 annual report managers of the Bank on Individual directors are by the Board based on control and processes. It the recommendation of the required to sign and abide their skills, knowledge and is also responsible for the CEO. by the Bank’s Code of experience. The members integrity of the Bank’s Conduct, Oath of Secrecy are: financial reports. Board directors bring with and to declare any conflict them a balance of skills, of interest that may arise Mr. John Prasad: The sub-committee met knowledge and experience while fulfilling their duty as Chairman three times during the year. appropriate to developing directors of the Bank. Mr. Jitoko Tikolevu: and enhancing the business Member Management relationship the Bank has with The details of the director’s Mr. Ilaisa Cavu: Executive Committee (EXCO) its diverse cross-section of participation of such Member Under the leadership and customers. meetings are given below. guidance of the Chief The sub-committee Executive Officer, the The directors meet monthly Board Sub-Committees supervises the work of the Executive Committee and are paid Directors The board established the Internal Audit Team of the includes the General Fees in addition to a Sitting Audit sub-Committee to Bank and provides liaison Manager Business Risk, Allowance as directed ensure oversight over specific between the board, auditors General Manager Operation by the Ministry of Finance areas of review critical to and the management on and the General Manager for every sub-committee the overall operation of the matters pertaining to the Finance and Administration. meeting attended. Bank. Members of this sub- Bank’s financial reporting EXCO are responsible for committee are appointed policies as well as internal implementing the policies,
NAME POSITION DATE OF DATE OF COMPLETION/ MEETINGS APPOINTMENT RESIGNATION ATTENDED John Prasad Chairman September 2008 - 9/12 Jitoko Tikolevu Deputy Chairman September 2007 - 11/12
10 Ilaisa Cavu Member September 2007 - 11/12 Joseva Serulagilagi Member September 2008 - 9/12 Manasa Vaniqi Member September 2008 - 7/12 Richard Beyer Member September 2008 August 2009 0/1 Isikeli Tikoduadua Member January 2010 - 7/7 Mason Smith Member April 2010 - 3/5
fiji development bank corporate objectives and External Audit General Instructions of the can lodge a written strategic direction set by Under the FDB Act (Cap Bank. complaint directly to the the board as well as the 214) and the Financial CEO. These complaints are allocation of resources Management Act (FMA) Individual employees are dealt directly by the CEO’s within the budget approved of 2004 as well as its required to sign and abide office. by the board. subsequent amendment by the Bank’s Code of promulgation (no.21) of Conduct, Oath of Secrecy Community at large Compliance and 2007, the financial statement and to declare any conflict The Bank as a responsible Regulatory Framework of the Bank is required to of interest that may arise employer and business Internal Audit be independently audited while fulfilling their duty as operator in the community The Bank has established annually and in accordance employees of the Bank. currently supports financial an Internal Audit Charter with the FMA. The Auditor literacy programmes in all to guide the internal audit General is the external The FDB recognises that secondary schools in Fiji as operations of the Bank. auditor for the Bank. client data confidentiality is well as promotion of small paramount in the banking and micro-entreprenuers The Internal Audit Team Stakeholders industry and has strict through its annual Small is responsible for ensuring Employees guidelines to ensure that this Business Awards as part that the operation is in Employees in carrying out is maintained. of its Corporate Social compliance with the their duties are required Responsibility programme. internal control systems to comply with all internal Customer In addition, the Bank and procedures of the policies and procedures of The Bank recognises that also maintains an annual Bank. The team reports the Bank. our customer is our most allocation for sponsorships directly to the Board’s valuable stakeholder. The and donations to various Audit sub-Committee with Non-compliance and Bank strives to maintain the charities and educational dotted line reporting to non-performance is dealt highest level of customer institutions. the CEO for administrative with in accordance to the service. Where a customer purposes only. This ensures procedures set out in the believes that he/she has the independence of the Collective Agreement with not been treated fairly, a 11 internal audit team. the Fiji Finance and Banking complaint procedure is in Employees Union and the place whereby customers
2010 annual report EXECUTIVE Management
1 2 3
12
4 5 6
1. Mr. Deve Toganivalu – Chief Executive Officer 4. Mr. Lasantha Thennakoon – General Manager Finance & Mr Toganivalu is a graduate from the James Cook University Administration (until 20 January 2010). of North Queensland, Australia where he obtained a Mr. Thennakoon is a chartered accountant by profession. Bachelor of Commerce majoring in Management and He holds a Master of Business Administration Degree from Finance. Prior to this appointment, he was the Bank’s the University of Colombo, Sri Lanka and a Honors Degree in General Manager Business Risk Services. Mr. Toganivalu Accounting & Financial Management from the University of also serves as a board member of the Fiji Sugar Corporation Sir Jayewardenepura, Sri Lanka. Prior to this appointment, he Limited and the Coconut Industry Development Authority. was Group Financial Controller of the Niranjan Group.
2. Mr. Umarji Musa – General Manager Operations 5. Mr. Saiyad Hussain – General Manager Finance & (retired 12 May 2010). Administration (from 8 February 2010). Mr. Musa is a graduate from the University of the South Mr. Hussain holds a Postgraduate Diploma in Banking Pacific with a Bachelor of Arts majoring in Economics. Prior and Financial Management from the University of the to this appointment, he was the Bank’s General Manager South Pacific, a Bachelor of Arts Degree in Accounting & Corporate Business Services. He retired after 36 consecutive Financial Management and a Diploma in Economics. He is a years of service with FDB. Chartered Accountant by profession. He held the position of Manager Finance prior to his appointment. 3. Mr. Tevita Madigibuli – General Manager Operations (from 7 June 2010). 6. Mr. Nafitalai Cakacaka Mr. Madigibuli is a graduate of the University of the South Mr. Cakacaka holds a Bachelor of Arts majoring in Business Pacific. He holds a Master of Business Administration, a Management from the University of the South Pacific and a Bachelor of Arts (Business Studies) and a Diploma in Tropical Certificate in Master Level from the Pacific Coast Banking Agriculture (Animal Science). Prior to his appointment he School, USA. Prior to this appointment, he was the Bank’s held the post of Manager Asset Management Unit. Manager Risk (Corporate). Mr. Cakacaka is also a member of the Fiji Institute of Bankers.
fiji development bank B Fiji Development ank Or
SHAREHOLDER Appoints GOVERNANCE ganig GOVERNMENT OF FIJI BOARD OF DIRECTORS Reporting & Accountability (Minister of Finance) Reporting & Accountability ram Reporting & Appoints Accountability EXCO
Comprises the CEO and 3 GMs. EXCO’s core function INTERNAL AUDIT TEAM is to implement policy CHIEF EXECUTIVE OFFICER directives of the Board and Administrative Reporting ensure ethical standards & Accountability and good practices are Reporting & Delegation of maintained throughout the Accountability Responsibility Bank. Compliance and Accountability Compliance Auditing
Quality Client GENERAL MANAGER GENERAL MANAGER FINANCE GENERAL MANAGER BUSINESS Services & ADMINISTRATION RISK SERVICES OPERATIONS CUSTOMERS Suva - Finance & Treasury - Legal/Insurance/Records • Agriculture - MIS/IT - Tender • Small & Medium Enterprise - Administration - Business Risk Services • New Products/Micro Loans • Corporate l Human Resources - Research, Marketing & • Asset Management Unit l Properties Business Development • Customer Service Centre Quality Client l Training (includes Policy Unit) Services Branches • Nausori • Sigatoka Implement PRODUCTS 2010 annual report • Nadi Product • Lautoka Sales • Agriculture Loans • Ba • Small & Medium Enterprise • Rakiraki Quality Guidance & Support Loans • Labasa • Micro Loans • Savusavu • Corporate Loans • Seaqaqa 13 FINANCIAL year in review
14 The 2009/2010 operating expenses Overview
amounted to $10.11MM, a decrease of Prudent financial management and cost control measures 1.65% from 2008/2009. The Operating in the face of challenging economic conditions resulted in a net profit of $2.36MM for the financial year ending 30 June expenditure was kept under effective 2010. This was a reduction of 32.18% in comparison to the control and fell within the approved 2009 financial year.
budget levels. Financial Highlights Net Profit ($MM) 6.00 5.35 5.00 4.32 4.00 3.82 3.48 3.00 2.36 2.00 1.91
1.0 0 0.45 0.00 2004 2005 2006 2007 2008 2009 2010
Total Assets ($MM) 500 450.39 414.7 408.2 400 394.6 378.7
309.2 300 269.2 200
100
0 2004 2005 2006 2007 2008 2009 2010
fiji development bank Financial income and expense $MM 2010 2009 Change Change rate (%) Interest income 30.36 39.24 (8.88) (22.63) Interest & other borrowing expenses (18.20) (14.67) (3.53) 24.06 Net interest income 12.16 24.57 (12.41) (50.51) Net Fees income 4.04 2.19 1.85 84.47 Other income 2.86 3.19 (0.33) (10.34) Operating expenses (10.11) (10.28) 0.17 (1.65) Allowance for credit impairment (6.59) (14.68) 8.09 (55.11) Allowance for loss - Govt. guarantee - - - - Diminution in investments - (1.52) 1.52 (100.00) Profit before income tax 2.36 3.48 (1.12) (32.18) Income tax expense - - - - Net profit 2.36 3.48 (1.12) (32.18)
Income The Bank's main source of revenue, interest income, recorded a decline of 22.63% when compared to the previous year (2008/2009). This decrease is largely attributed to an increase in impaired assets and the suspension of interest charges on these accounts. The Bank's other sources of revenue included fees, bad debt recovery and rental income.
Interest & Borrowing Expenses Despite adequate liquidity, interest rates did not decline substantially due to the high demand for funds. This led to an increase in the Bank’s borrowing expenses by 24.06% when compared to 2009. The Bank’s average weighted cost of funds increased to 6.59% in 2010 compared to 5.62% in 2009. 15
Operating Expenses The 2010 operating expenses amounted to $10.11MM, a decrease of 1.65% from 2009. The Operating Expenditure was kept under effective control and fell within the approved budget levels.
Allowance for Credit Impairment After assessing the relevant risks factors as per the Bank’s Credit Risk and Impairment Loss Policy, an allowance for credit impairment of $6.59MM was set aside to cater for future credit losses. This was a decline of 55.08% over the 2008/2009 period due to slight improvements in the overall market conditions.
2010 annual report Financial conditions Asset structure $MM 2010 Composition (%) 2009 Composition (%) Cash 21.51 5.68% 33.22 8.14% Amounts due from subsidiary 0.00 0.00% 0.00 0.00% Loans and advances 336.87 88.95% 356.05 87.22% Other Debtors 4.32 1.14% 2.85 0.70% Property, plant & equipment 15.37 4.06% 15.58 3.82% Intangibles 0.06 0.01% 0 0.00% Investments (incl. subsidiary) 0.07 0.02% 0.07 0.02% Land held for resale 0.51 0.14% 0.44 0.11% Total 378.72 100.00% 408.21 100.00%
As at 30 June 2010, the Bank's total assets amounted to $378.72MM, a decrease of 7.22% from 2008/2009. Total loans and advances, the largest asset category, dropped by 5.39% due to the general slowdown in economic activity during the year.
L iability structure $MM 2010 Composition (%) 2009 Composition (%) Total Borrowings 253.94 94.75% 284.57 94.90% 16 Employee entitlements 1.57 0.58% 1.32 0.44% Deferred income 2.02 0.75% 2.15 0.72% Accounts payable and accruals 5.06 1.89% 6.09 2.03% Other liabilities 5.41 2.02% 5.73 1.91% Total 267.99 100.00% 299.86 100.00%
In the 2009/2010 financial year, total liabilities amounted to $267.99MM, a decrease of $31.87MM (10.63%) over the 2008/2009 financial year.
The Bank’s major source of funding is through issuance of bonds and promissory notes in the domestic market. As at 30 June 2010, total borrowings fell by 10.76% in comparison to 30 June 2009. The decrease in borrowing is mainly due to low disbursement.
The Bank's yield from credit assets maintained a sustainable level this financial year. In view of the volatilities in the domestic financial market, the Bank proactively assessed the impact of various risks on the Bank's asset quality, and made allowance for loan losses where appropriate.
fiji development bank Profitability 2010 2009 Return on average assets (ROA) 0.54% 0.79% Return on average equity (ROE) 2.15% 35%
Total Impaired Loans Ratio (%) Bonds Outstanding ($MM) 12.00% 300 10.65% 10.14% 254.14 10.00% 250 227.05 237.33 8.26% 219.23 8.00% 200 188.94 178.83 6.00% 150 141.23 4.93% 4.99% 4.00% 100
2.00% 50
0.00% 0 2004 2005 2006 2007 2008 2004 2005 2006 2007 2008 2009 2010
Historical Performance 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 17 Financial Net profit($M) 0.30 0.70 2.04 0.45 1.91 5.35 4.32 3.82 3.48 2.36 Total Assets ($M) 322.30 284.70 271.40 269.20 309.20 394.60 450.39 414.69 408.21 378.72 Total Assets / Equity (%) 4.08 3.57 3.32 3.28 3.68 4.41 4.72 4.17 3.77 3.42 Average Earning assets (AEA) ($M) 345.80 327.70 302.00 282.70 302.90 359.80 421.10 446.24 438.97 435.61 Borrowing Cost (%) 7.35 7.12 6.24 4.88 4.01 3.92 6.92 5.37 5.62 6.59 Total Cost / AEA (%) 7.59 7.50 7.10 7.06 6.44 6.00 7.94 7.51 5.68 3.83 Profit (Loss) / Average Equity (%) 0.39 0.88 2.53 0.55 2.27 5.98 4.67 3.92 3.35 2.15 Long Term Debt : Equity 2.99:1 2.43:1 2.12:1 1.99:1 2.49:1 2.55:1 2.49:1 1.90:1 2.35:1 1.98:1 Interest Spread (%) 2.01 2.51 3.97 3.73 3.79 4.11 2.39 4.76 3.34 0.38 Earning Spread (%) 2.84 3.30 4.61 6.13 5.55 5.79 4.48 8.89 4.54 1.96
Operating Efficiency Staff Cost / AEA (%) 1.64 1.75 2.09 2.50 2.14 1.89 1.73 1.87 1.46 1.58 Total Income / AEA (%) 10.19 10.42 10.88 11.73 10.21 10.29 6.37 9.66 6.82 4.38
Lending Approvals (Number) 1,751 1,019 1,007 1,105 1,903 2,104 1,709 1,502 1,840 1,817 Approvals ($M) 50.40 24.43 67.19 76.45 227.27 188.21 115.24 84.10 76.21 56.53 Loan Portfolio (Number) 6,092 6,282 5,990 4,372 5,588 5,888 5,251 5,989 5,987 6,435 Gross Loan Portfolio ($M) 321.70 293.30 282.50 281.18 325.01 392.69 446.27 443.07 433.26 437.86 Growth in Loan Portfolio (%) 1.41 -8.83 -3.68 -0.46 15.59 20.79 13.64 -0.72 -2.21 1.06 Arrears / Loan Portfolio (%) 7.29 6.84 6.66 7.42 4.32 1.32 1.20 2.54 6.88 18.89
2010 annual report FIJI DEVELOPMENT BANK’S MARKET SHARE
FDB ($M) Commercial Credit Fiji Total FDB as a Banks ($M) Institutions ($M) ($M) % of Fiji Total
Agriculture 50.8 22.2 13.4 86.4 58.8 18 Sugarcane Growing 6.5 1.1 0.0 7.6 85.1 Forestry & Logging 14.5 3.8 10.3 28.6 50.6 Others 29.8 17.3 3.1 50.2 59.4 Mining & Quarrying 1.3 5.1 2.4 8.8 14.7 Manufacturing 41.4 268.4 17.2 327.0 12.7 Food, Beverages and Tobacco 23.3 102.4 0.9 126.6 18.4 Textiles, Clothing and Footwear 2.6 35.0 0.8 38.4 6.7 Metal Products and Machinery 1.7 21.4 1.5 24.6 6.9 Others 13.8 109.6 14.0 137.4 10.0 Building and Construction 64.5 221.7 31.1 317.3 20.3 Real Estate (Development) 120.9 312.5 8.3 441.7 27.4 Non-Bank Financial Institutions - 6.2 - 6.2 - Public Enterprises - 80.2 0.1 80.3 - Wholesale, Retail, Hotels and Restaurants 35.6 715.8 25.1 776.5 4.6 Hotels and Restaurants 13.3 287.2 3.2 303.7 4.4 Other Commercial Advances 22.3 428.6 21.9 472.8 4.7 Transport, Communications and Storage 20.3 121.7 48.4 190.4 10.6 Professional Business Services 22.5 91.4 25.3 139.2 16.2 Private Individuals 57.1 832.6 122.1 1,011.8 5.6 Housing 55.1 665.9 72.5 793.5 6.9 Car or Personal Individual Transport 0.1 8.9 28.0 37.0 0.4 Others 1.9 157.8 21.6 181.3 1.0 Central and Local Government 15.7 20.8 0.2 36.7 42.8 Other Sectors 2.7 130.1 13.4 146.2 1.9 TOTAL 432.6 2,828.7 307.0 3,568.3 12.1
NOTE: Fiji total refers to total loans and leases advances outstanding by all commercial banks, licensed credit institutions and the Fiji Development Bank as at 30 June 2010. The Bank's market share is highlighted.
fiji development bank Bringing Home the Bacon
At six months and weighing at 50kgs on Naomi Bale and her “We work it (breeding 19 husband Allan Fletcher programme) so that that average, the pigs fetch around $5.50kg live on a 10-acre freehold every two weeks we will or $225 each. property up the Valley Road have one of the sows giving in Sigatoka where they have birth so that six months down since 2006, owned and the line we should be able to operated a piggery made supply an annual average of possible with financing from about 260 pigs per annum to the Fiji Development Bank. the Fiji Meat Industry Board in Vuda,” Allan said. Many would probably turn their nose up at this line At six months and weighing of livestock farming but if at 50kgs on average, the managed properly, the pigs fetch around $5.50kg or financial rewards does $225 each. more than make up for the olfactory discomfort that The couple also plan to comes with it. develop a portion of their property into an eco-tourism “We started with only five venture complete with back sows and a boar and packer accommodation through a regimented and a nature trail. programme of breeding, we have managed to bring our stock up to 13 sows and a boar so far,” Allen said.
In addition to the sows and boar are 59 piglets which the couple has already marked for breeding and for selling.
2010 annual report OPERATIONAL REVIEW
20 The division of the portfolio resulted Operations covers several Non-Focused sector lending areas – lending (corporate, involves loans to building in more emphasis being placed on the SME, micro-loans, agriculture and construction, private growth of lending to small and medium including nine branches), individuals, real estate asset management, tender and loans over $500,000 to enterprises in the focused sector. Lending and customer services. In the businesses involved in the to the non-focused sector has been last decade, the division has professional and business undergone several structural services and the wholesale capped at $350MM of the Bank’s total changes to cater for the and retail sectors. portfolio. market’s demand for various financial products and The division of the portfolio services. In 2008, this change resulted in more emphasis resulted in centering the being placed on the growth Bank’s lending to what has of lending to small and been classified as Focused medium enterprises in the and non-Focused sectors. focused sector. Lending to the non-focused sector has Focused sector lending been capped at $350MM of involves products and the Bank’s total portfolio. services to primarily develop resource-based sectors Lending activities during (agriculture, fisheries the year and forestry, mining and Focused Sector Loans quarrying), manufacturing, At the end of the 2009/2010 professional and business financial year, the Bank services, transportation, approved a total of 1,624 communication and storage projects valued at $56.78MM. as well as wholesale and Although this is a drop of retail. Micro-loans is also 104 projects or $12.34MM included in this portfolio. when compared to the
fiji development bank previous financial year, commercial farming by for the rental of commercial borrowings of $6.65MM. This this sector contributed seizing opportunities created buildings. number accounted for 28.6% 90.5% ($51.36MM) of total by local market demands of all Bank clients and 1.5% approvals – a growth of as well as processing and Compared to the 2008/2009 of the Bank’s total portfolio 28.8% ($8.75MM) over export demands. financial year, there was an respectively. The facility was 2008/2009. overall drop in the approvals suspended in December The transport, to this sector by $21.13MM 2009 following exhaustion of Approvals to the agriculture communication and storage indicative of the prevailing the $3.00MM provision. sector accounted for sector accounted for economic downturn 54.4% ($27.93MM) of total 37.8% ($19.40MM) of total experienced during the year. Portfolio approvals in 2009/2010. This approvals. This is indicative The Bank’s total portfolio amount is an increase of of an increasing demand Social Banking as at 30 June 2010 stood at 52.9% ($9.65MM) in value, on transportation and The Social Banking Facility is 6,532 accounts with a total for approvals in 2008/2009. communication services in designed to help alleviate loan value of $438.04MM. This is indicative of increased the market. poverty and uplift the Compared to 30 June activity in development of living standards of the least 2009, the total portfolio Fiji’s agro-based industries In addition, manufacturing advantaged members of increased in number and during the year. accounted for 2.3% the community. Under this value by 549 and $7.88MM ($1.17MM) of approvals, facility, the Bank provided respectively. This is a direct The Bank remains mindful mining and quarrying 0.2% that it has to balance its ($0.09MM), micro, small SOCIAL BANKING commitment to provide and medium enterprises NUMBER VALUE ($MM) financing to subsistence associated with wholesale, Agri-finance 663 $2.84 and semi-commercial retail, hotels and restaurants Micro loan 1,208 $3.81 farmers but at the same 4.0% ($2.05MM) and Total 1,871 $6.65 time, continue to market professional & business to large scale commercial services 1.4% ($0.71MM). micro and agri-finance result of increased activity agricultural projects as these loans to clients who would and lending to the focused 21 projects have the potential Non-Focused Sector Loans not have had access sector. to create employment and During the 2009/2010 otherwise to credit because reduce Fiji’s reliance on financial year, a total of of insufficient equity and Valued at $157.73MM, the imports. Every effort is made 101 applications valued at security. focused sector portfolio to encourage subsistence $5.42MM were approved accounted for 76.0% (4,964) farmers to move into in the non-focused sector. At the close of the 2009/2010 by number. Agricultural semi-commercial farming Of these, 80.9% ($4.39MM) financial year, the Social project loans accounted for and semi-commercial was approved for real Banking Facility accounted 46.6% of the total focused farmers towards full scale estate loans in particular, for a total of 1,871 clients with
2010 annual report portfolio value, followed by challenges faced by In an effort to decrease in Bua and Somosomo in manufacturing at 22.3%. development banks reliance on imports, the Taveuni. It is envisioned are considered greater Bank will also direct its that the addition of the The non-focused sector due to the intrinsic risks efforts towards increasing new branches will not only portfolio accounted for associated with the areas investment in large provide much-needed 24.0% (1,568) by number and it invests in. In addition to commercial agriculture and access to financial services $280.30MM in value of which, climatic, environmental and agro-processing projects. to residents in these rural building and construction social conditions, factors outposts but also boost accounted for 36.5% and associated with cultural or The success of these growth agriculture and other real estate 34.7% of the total traditional principles, also strategies will however, economic activities in the non-focused portfolio value. impact the application depend on support from future. of appropriate business stakeholders in terms Market Share practices. of providing necessary Bua and Taveuni were Relative to total loans and legislative, technical, previously serviced out of lease advances outstanding To a small degree, the global marketing and infrastructural Seaqaqa and Savusavu by all commercial banks recession and the general inducements necessary to branches through regular and other licensed credit slump in the economy, spur investment in these agency visits. institutions, the total market led to the unsatisfactory projects. share of the Bank’s portfolio performance by some of Credit Institution License (CIL) stood at 12.1% as at 30 the Bank’s clients. Poor Northern Development The Bank continues to work June 2010. A reduction performance was also The Northern Development towards securing a CIL of 0.1% compared to the fueled by land tenure issues, Programme (NDP) with the Reserve Bank of Fiji same period last year, it limitations to infrastructure, was brought about by as a measure to counter 22 is indicative of consistent increase in the cost of goods Government’s intention to the high cost of funds it performance in an otherwise and services as well as a fall revitalizing economic activity currently faces. As opposed bear market. in the demand for certain in the Northern Division. to commercial banks, cost goods and services. To this end, the Bank will of borrowing for the Bank is In as far as lending to continue to place special much higher at 6%, which the agricultural sector is Additionally, the increasing attention in the Division, and is currently subsidized by concerned, the Bank has cost of funds has also is evident in the Bank’s aim of Government. If granted, the the largest overall market impacted the Bank’s liquidity opening two more Branches Bank will be able to take on share held by any single status. The Bank recognises in the North. term deposits, thus improving financial entity at 58.8% - this risk and is currently liquidity, reducing cost of an increase of 5.2% when looking at sustainable ways Strengthening Outreach funds, and allowing the Bank compared to the previous in addressing this. The Bank currently operates to become self-sustaining year. This shows a strong nine branches Fiji-wide and provide competitive commitment by the Bank Portfolio Expansion in addition to full lending interest rates to borrowers. towards the development of The Bank is geared to grow service provided out of its the agricultural sector. its total portfolio by a further head office in Suva. The 16.4% over the next three Board in its meeting of Looking Ahead to 2011 years through new business February 2010 approved In contrast to commercial primarily in the focused the addition of two new lending institutions, sector. branches in Nabouwalu
fiji development bank 2009/2010 FINANCIAL YEAR DATA BASED ON RBF CLASSIFICATION
Sector/RBF Major Approvals No. Value % by No. % by Value Focused 1,523 51,358,277 93.78% 90.45% Agriculture 1,212 27,932,841 79.58% 54.39% Manufacturing 20 1,170,722 1.31% 2.28% Mining and Quarrying 1 91,000 0.07% 0.18% Professional & Business Services 36 710,966 2.36% 1.38% Transport, Communication & Storage 45 19,403,353 2.95% 37.78% Wholesale, Retail, Hotels & Restaurants 209 2,049,395 13.72% 3.99%
Non-Focused 101 5,420,253 6.22% 9.55% Building & Construction 3 629,255 2.97% 11.61% Others - - 0.00% 0.00% Private Individuals 90 404,043 89.11% 7.45% Professional & Business Services - - 0.00% 0.00% Real Estate 8 4,386,955 7.92% 80.94% Wholesale, Retail, Hotels & Restaurants - - 0.00% 0.00%
TOTAL 1,624 56,778,530 23
Sectors/RBF Major Portfolio as at 30/06/2010 No. Value % by No. % by Value Focused 4,964 157,734,995 76.00% 36.01% Agriculture 3,414 73,508,397 68.78% 46.60% Manufacturing 132 35,088,900 2.66% 22.25% Mining and Quarrying 10 995,078 0.20% 0.63% Professional & Business Services 168 3,494,330 3.38% 2.22% Transport, Communication & Storage 380 30,249,472 7.66% 19.18% Wholesale, Retail, Hotels & Restaurants 860 14,398,817 17.32% 9.13%
Non-Focused 1,568 280,300,521 24.00% 63.99% Building & Construction 76 102,353,228 4.85% 36.52% Others 26 658,091 1.66% 0.23% Private Individuals 1,268 57,097,164 80.87% 20.37% Professional & Business Services 3 4,616,155 0.19% 1.65% Real Estate 183 97,308,717 11.67% 34.72% Wholesale, Retail, Hotels & Restaurants 12 18,267,165 0.77% 6.52% TOTAL 6,532 438,035,516
2010 annual report So, so out of this world
“We believe that Fiji is wide open for all kinds of development and there are many untapped opportunities.”
24 The Naisoso Island “Over 800,000 cubic metres we saw as fundamental to and international, provided Development Project of fill was dredged and undertaking a development they respect the standards is a landmark tourism excavated from around the size of Naisoso,” Mr. and cleanliness of Naisoso, project development in the island. The fill was Lowres said. Mr. Lowres said. Fiji. Undertaken by Relcorp excellent in that it was full “Naisoso will feature white Property Development of coral which is perfect for beaches, a swimming Naisoso is a step toward of Australia, they have a stable building platform. lagoon, luxury housing for other similar developments done well to achieve their This was done using world’s holiday letting, the Hotels envisaged by Relcorp for Fiji. vision of creating “the best best practice (on) Coastal will provide water sports. “Apart from delivering master planned tourism Protection works," said Bob The retail marina complex on the Naisoso promise development in Fiji.” Lowres, Managing Director will feature restaurants, bars, we intend to start new of Relcorp, the developers of coffee shop, delicatessen, business ventures primarily Bringing together two of the Naisoso. an art gallery and other in development which is country’s major financiers, assorted shops.” our expertise. We will look to the Fiji Development Bank After previewing a few engage via profit share/joint and the ANZ Bank in a joint locations, Naisoso was the The developers have so far venture arrangements with funding arrangement of hands down winner when sold 40 lots with another 50 local land owners to utilize which FDB covered the it came to selecting the expected to be settled by their landholdings in a long first phase, the project is perfect location for this the end of December 2010. term manner that will reap a prime example of how $35MM land development Twenty nine lots are still up benefits in years to come. environmental concerns can venture. for sale to anyone interested Low cost housing including be addressed in terms of in spending anywhere finance packages, aged tourism development which “Without question it (Naisoso) between $1.9 and $2.2MM care retirement villages etc can only be described as was the prime site for us. for beach front lots or are also on the agenda,” he environmental engineering Obviously the success of $975,745 for river front lots or said. for commercial profit. Denarau was a factor and $557,568 for lifestyle lots. many of the elements such “We believe that Fiji is Naisoso Island lies over a as proximity to the airport, Once operational, the wide open for all kinds of gated entry at the end of, shopping, restaurants, private island will be development and there well, Nasoso Road in Nadi. gateway to the islands, etc., accessible to visitors, local are many untapped opportunities.”
fiji development bank RISK MANAGEMENT
Fiji’s economy contracted at 3.0% of GDP at the end of 2009 compared to the revised figured of 0.2% in 2008 and -0.9% in 2007. The forecasted estimate for 2010 is 0.1% with further recovery of 1.3% for 2011, 0.8% in 2012 and 1.2% in 2013. For any development enterprise risk management 25 bank, its high risk business concept when assessing risk focus means implementing throughout the organisation. prudent risk management strategies if it is to remain Fiji’s economy contracted sustainable and relevant. at 3.0% of GDP at the end Globally, development of 2009 compared to the banks have gradually revised figure of 0.2% in incorporated commercial 2008 and -0.9% in 2007. The banking practises including forecasted estimate for 2010 commercial sector business is 0.1% with further recovery to off-set risk so that of 1.3% for 2011, 0.8% in 2012 operations remain viable and 1.2% in 2013. and lending to the high risk development sector can As a result of the declining continue. growth, inflation peaked at 7.6% in January 2009 before Such reforms directed by closing at 3.7% at the end the sovereignty rating of a of 2009. Major floods and nation, reflecting the level of damage caused by Cyclone public investments, foreign Mick in 2009 and Cyclone debts and government Tomas in 2010, severely finance, also takes into impacted infrastructure, consideration the population utilities and the agriculture demograph, standard of sector. living and technological advancement. In view of the slow economic recovery, businesses had to The Fiji Development Bank adapt varying strategies to employs this as well as the counter the negative impact
2010 annual report of natural and market credit policies to minimise Policy Directives To facilitate Government’s forces. This also posed a risk. Owned solely by the development initiatives, the challenge for the Bank in Government of Fiji, the Bank Bank adopted changes terms of risk assessment The annual review of is also subject to Government to the Agriculture Loan due to uncertainties. The accounts is now mandatory policy directives. Since Policy, combined the Import Bank continued its support to ensure that the business 2008, the Bank reorganised Substitution and Export of Government and its continues to be financially its priority lending areas to Finance Facility policies plans to boost agriculture, sound, and that the value reflect the policy direction into a single product and develop rural economies of collaterals is able to meet instructed by Government. introduced the Sustainable and increase exports in an future repayments. All development loans Energy Policy and the Flood effort to move the economy are now focused on Rehabilitation Facility. The forward. To do this, certain Regulatory Control agriculture, mining and combined Import Substitution loan conditions for the Under the Fiji Development quarrying, transport, storage and Export Finance Facility is sugar industry in particular, Bank Act (1967) the Bank is and communication, a Reserve Bank of Fiji Facility were relaxed to allow accountable to the Minister manufacturing and aimed at providing cheaper greater access for sugar of Finance but is required to small medium enterprise funds to farmers, service cane farmers, which in turn comply with the terms and loans to wholesale, retail, providers and producers propelled the bank towards conditions of the Banking hotels and restaurants as to enhance production the higher spectrum of risk. Supervision Policy of the well as professional and capability and export. Reserve Bank of Fiji (RBF). business services. For The Bank has also The supervision guidelines 2010, Government also Competition incorporated policies for provided by RBF aligns emphasised financing for Like any other financial identifying problem loans, the Bank to international the development of all institution, the Bank faces 26 continued recovery of best practices for financial resource-based industries, a competitive environment arrears even after the and regulatory controls, export oriented projects, within the financial market, account has been written off which are also followed financial literacy in schools as which includes commercial and loan restructure as part by reputable financial well as making microfinance banks, private financing of its risk management and institutions globally. accessible to the less affluent firms, growers’ funds, members of society.
fiji development bank insurance companies, credit not translate into reduced Canada. The return of accounts are provisioned unions and other credit cost of funds as the price visitors from traditional source for. The RBF requires that at institutions. The Bank was of bonds steadily increased markets is a good omen for least 70% of the value of all compelled to match, as far during the financial year. the tourism sector which loans and advances are as possible, the flexible loan continues to experience assessed annually. The Bank's pricing of the commercial Timely management of strong growth along with the allowance for loan losses banks in order to remain investments, maturities, retail and mining sectors. is in compliance with the competitive. The Bank also short term borrowings, International Finance Reports reviewed its pricing strategies Government backed One of the resulting fall-out Standards (IFRS). to sustain its operations and bonds and promissory of the events of December allowed some flexibility to notes enabled the Bank 2006, was a travel ban improve on interest margins. to maintain liquidity at a imposed by certain foreign satisfactory level. governments on any Apart from its positioning local accepting senior and products in the appointments within the market, the Bank also relies Interest Rate Risk public service and onto on the experience of its Cost of funds paid on the boards of Government staff, customer service, Bank’s interest-bearing owned enterprises. This promotional initiatives, liabilities is determined by restriction has limited the networking and personal the market, the general selection of suitable people contacts to grow market economic condition, willing to take up these share. political stability, policies of appointments. Government and the RBF, Insurance factors that are beyond the As calculated measures 27 Loan insurance Bank’s control. To mitigate to speed up economic arrangements are an rate risks, the Bank continued recovery, the Government integral part of the Bank’s to pursue the acquisition of continues to institute reforms operations. This means an the Credit Institution License throughout the public service adequate and appropriate from the RBF as a long term and selected state-owned cover has to be in place, solution to reducing the cost enterprises, created the tax premiums paid and policies of funds. free zone in the Northern maintained. This also includes Division, streamlined the attendance to claims Political Risk and Other application process at the throughout the duration of Factors Fiji Trade and Investment a loan. To enhance service Fiji’s current political climate Bureau, introduced dual to customers, the Bank has prompted Government citizenship and permanent provides insurance through to seek a new line of residency to encourage the concept of a one- investments which they former Fiji residents to stop shop. However, under have vigorously pursued with return and invest; and the Consumer Credit Act, friendly countries in Asia. continued investment in the customers are still free to As the country stabalises improvement of infrastructure select their own insurer if they politically, the confidence and utilities necessary to prefer. in safety and security is generate investment. reflected through increasing Liquidity Risk visitor arrivals which reached Allowance for Loan Losses Compared to 2008/2009 the 542,186 at the end of 2009. The Bank adheres to the liquidity situation in 2009/2010 By country, 45.85% were Central Bank guidelines for was much improved as a from Australia, 16.77% from account grading which result of regulatory controls New Zealand, 9.52% from determines provisions for loan by the RBF on setting interest the United States and the losses. Individually Assessed margins and removing the remaining 27.86% were Allowance is estimated on ceiling on loan amounts. from Continental Europe, Trouble and Impaired Assets This liquidity however, did Asia, United Kingdom and (TIA) to ensure doubtful
2010 annual report BLENDING THE SPIRIT OF MULTICULTURALISM WITH BUSINESS
28 “The Club was founded initially as a The Vunicuicui Women’s When the women get Club at Vunicuicui, 15 together they swap food place where women of different races kilometres from Labasa, runs recipes as well as teach could come together in a social setting on an interesting concept. other to crochet, screen It is a place where culture, print and make floral and learn things about each other’s ideas, culinary delights arrangements. This, Nirmala traditions and culture,” says Nirmala and traditional dress are said, keeps them active exchanged as easily as two and help build strong Sharma, 37, vice-president of the club. dollar notes over the counter inter-racial relations within for a packet of milk. the community where the economic mainstay of many “The Club was founded of the families that reside initially as a place where there are cane farming, women of different races dalo, banana and bee could come together in farming. a social setting and learn things about each other’s “About a year ago, the traditions and culture,” says women were talking about Nirmala Sharma, 37, vice- how there was no shop at president of the club. Nasoni, which is where we are because nearby we “We have eight Fijian and have Waikisi Village, the koro four Indian women who makawa (old village site),” are active members and Nirmala said. from time to time we have others in the neighbourhood “Waikisi has a population of dropping by to see what about 150 people and to we’re up to.” buy anything we had to walk all the way to Korowiri which is about four kilometers away
fiji development bank or wait until we go into town from the Vunicuicui Women’s “We have no electricity in there is not as far-fetched so we, the women’s club Club. the area yet so we only sell when you hear Nirmala’s decided to open a small basic food items that are reasons. shop more as a service than In March (2010) with an dry goods,” Nirmala said, a business.” NDP grant of $4,700 and adding “when the Prime “We have a lot of students an additional financing of Minister visited us earlier this here who go to school in With the help of an NGO, close to $5,000, from the Fiji year (2010) we asked him Labasa and they need the women approached Development Bank under about bringing electricity to access to the internet and the Northern Development the Microcredit component the area and he assured us to computers and we would Programme in January (2010) of the Social Banking facility, that he would look into the like to provide that service with their proposal and to the women opened the door possibility.” also to our children,” she their delight, were given to their dream store which said. the green light provided now generates between When electricity does come they attended an eight- $200 to $500 in weekly sales. to Vunicuicui, the women The women believe that day business course for To be able to achieve this have plans to convert their by providing this additional all intending new business kind of sales within three meeting room, adjacent to service, they can help operators. Nirmala proudly months of operation reflects the store; into an internet collectively to progress and recalls that of the 25 stringent management and café. An internet café in enhance the quality of life participants, 10 were women a cash only purchase policy. Vunicuicui? Really? The idea for the members of their while seemingly a little out community.
29
2010 annual report CORPORATE SOCIAL RESPONSIBILITY
The FDB through Money $mart™ is The Bank continued with Money $mart™ its commitment to the In its third year, this financial in compliance with the Reserve Bank community through its literacy programme is taught Money $mart™ programme as part of the Commercial 30 of Fiji’s goal to engage financial in 162 secondary schools in Studies subject in third forms institutions under its Financial Inclusion Fiji and the Small Business in all schools throughout Fiji. Programme which is managed through Awards as well as donations Funded by the Bank, this and sponsorship to selected programme has also been the Financial Systems and Compliance individuals and organizations adopted into the curriculum Office. during the year. by a secondary school in Tuvalu. The FDB through Money $mart™ is in compliance In September and October with the Reserve Bank of Fiji’s 2009, the 2008 awards goal to engage financial for Money $mart™ were institutions under its Financial presented to three schools in Inclusion Programme which the following categories: is managed through the Financial Systems and Central/Eastern Compliance Office formed - Bhawani Dayal Arya in April 2010. Under this College initiative, the Bank is also a Western member of the respective - Drasa Secondary School working groups that will Northern take financial inclusion and - Holy Family Secondary financial literacy forward for Maritime the country. - Not awarded
The winning schools each received an HP computer for
fiji development bank their school. No award was unnecessarily disadvantaged Very Remote Category finances is the way forward presented for the Maritime schools i.e. in one division - Koro High School out of poverty and improved zone as none qualified under the locations of schools vary (Koro Island) livelihoods for all our citizens,” the criterion set. from urban to very remote said FDB’s chief executive which meant each would The winning schools each officer Deve Toganivalu as For the 2010 awards, the have varying access to received a cash prize of $500 he handed the items over. criteria set previously to resources. The new criteria each. decide category winners was now allow all urban based The sponsorship through amended to reflect a fairer schools, irrespective of their Additionally, as part of resource materials, awards system for all schools geographical location to ongoing support to Money operational costs for teacher submitting their results for the compete evenly. Smart™ the Bank handed training and awards for competition. The process over close to $52,000 worth winning schools amongst of assessing moderated In May and June 2010, of resource materials that other things, has been results remains, only the the awards for 2009 were included money boxes, provided by the Bank at a classification of schools has presented to four schools resource and work books, a value of close to $180,000 changed from geographical around the country as computer and key tags to since 2007. location – Northern, follows: the Ministry of Education in Western, Central/Eastern Urban Category early May. and Maritime divisions to - Nadi Sangam (SKM) the Ministry of Education’s College (Nadi) “We view Money $mart™ classification of Urban, as an investment in the Rural, Remote and Very Rural Category future because we know Remote, which now allows - Korovuto College (Nadi) that a financially literate the schools to compete on Remote Category generation who are 31 an even footing. Previously - Lekutu Secondary School innovative, enterprising and geographical divisions (Bua) better at managing personal
2010 annual report Small Business Awards CEO Ratu Deve Toganivalu 6. Manufacturing made financial contributions Start Small, Think Big was the said that while small Category sponsored by through donations and theme for the 2009 awards, businesses cannot compete New India Assurance and sponsorship to educational held at the Forum Secretariat with larger businesses in Overall Category sponsored institutions and not-for-profit Fale in January 2010. The terms of turnover, they can by the Fiji Development Bank organizations who do charity Award was the sixth since its be just as competitive, just Sagaitu Craft Centre work in the community. inception in 2004. Winners as creative and in their own (Vatukoula) were given $1,500 as their way, just as successful as During the year, the Bank main prize, with the overall large businesses in Fiji. Donations and supported the following: winner walking away with an Sponsorships • University of the South additional $3,000. The following are recipients Staff of FDB are always Pacific (Gold medalist for of the 2009 Small Business ready to get behind a good Business and Economics) Chief guest Dr. Nur Bano Awards: cause. During the year, staff • Fiji College of Agriculture Ali, President of the Suva 1. Professional Services fundraised and made (Dux) Chamber of Commerce Category sponsored by donations of cash and kind • Nukuloa College said that whilst all businesses Connect to the public appeals by the (rebuilding appeal have the potential, not all Priyesh Hair Cutz (Nausori) Fiji Cancer Society, Cyclone following a fire) of them will become large Tomas Appeal by Fiji Red • United Blind Persons of Fiji corporations. 2. Agriculture Category Cross, Baby Ashaz and a (annual appeal) sponsored by Crest seven year-old survivor of • Votualevu Public School “The focus instead should Chicken sexual assault. The Bank (rebuilding appeal be on the ability of small Karan’s Farm Fresh (Nausori) matched dollar-for-dollar, following a fire) businesses to economically all money raised by staff • Ministry of Agriculture 32 empower the individuals 3. Wholesale/Retail for the Fiji Cancer Society’s (Sheep Farmer of the operating them, the Category sponsored by Biggest Morning Tea and the Year) economy and ancillary FINTEL Cyclone Thomas appeals. • Samoa Tsunami Appeal service providers through the Ryna Business Management • Home of Compassion provision of employment and (Suva) The Bank also participated (annual appeal) services,” she said. in the 2009 Hibiscus Festival • Bua Showcase (Business 4. Tourism Category by entering a Miss Hibiscus Award and Farmer of the The emphasis and focus on sponsored by The Fiji Sun contestant as well as a Teen Year Award) small businesses she added is Cara’s Tours (Suva) Hibiscus contestant, the latter • Fiji Paralympic a global phenomenon and winning first runner-up place Committee (annual very well justified because 5. Open Category in the pageant. Effort on the appeal) the collective strength and sponsored by The Reserve part of staff saw well over • St John’s Ambulance power of small businesses Bank of Fiji $6,000 raised for charity. (annual appeal) to multiply and grow the Kelera Kau’ata (Sigatoka) Additionally, the Bank also economy is phenomenal.
fiji development bank Making our Children Smart about Money
“You will agree that it is very difficult to Sharing her experience as a services set up by the Bank 33 student of Money $mart™ over the years to help small change a mind set or habits that have in 2009, Form Four student business clients particularly, been developed over several decades of Koro High School, Miriam manage their finances. Waqawai, said that with so why not try and develop instead, Money $mart™ she and her “It was an expensive lesson a generation of entrepreneurs who are peers learnt to budget, use that taught us several and save money. valuable lessons not the least taught how to plan, budget and save of which was that it is very from a very early age – hence Money “In the 12 weeks that difficult to re-train and teach we were given to do this older clients to change $mart™.” particular task I saved up spending habits formed over to $30 as did many of my a good number of years,” friends,” she said. he said.
“Last year I sold green “You will agree that it is very coconuts in school, toffee difficult to change a mind at home and I even took a set or habits that have been job like washing our car. All developed over several the money I collected, I put decades so why not try in my money box as savings. and develop instead, a Some of my friends brought generation of entrepreneurs fruits, lakri and barfi (Indian who are taught how to plan, sweets) to school.” budget and save from a very early age – hence Money General Manager Business $mart™.” Risk Services, Nafitalai Cakacaka says Money Mr. Cakacaka said that the $mart™ is the long term Bank recognizes that young option to client advisory people are consumers as
2010 annual report well and while their spending $mart™. As a responsible creating a savings plan “When I hear of such habits are still forming, “we corporate citizen it could based not only from pocket ingenuity, I am encouraged felt it necessary to begin the no longer ignore the limited money given by their parents and heartened to see that educative process before abilities people in Fiji had for and guardians but through the theory can be applied bad spending habits take managing money. small business like selling practically and that children hold.” guavas, mangoes and are learning as intended, “It is pleasing to see that other items that they have the value of money and of He said that the Bank already, young people accessed from their back savings.” has spent considerable are employing their yard gardens,” he said resources to create Money entrepreneurial skills by
Koro High School
34
Korovuto College
Lekutu Secondary School
Nadi Sangam SKM
fiji development bank FINANCIAL REPORT
Directors’ Report...... 36 Statement by Directors...... 38 Independent Audit Report...... 39 Statement of Financial Position...... 40 Statement of Comprehensive Income...... 41 Consolidated Statement of Cash Flow...... 42 Statement of Changes in Equity...... 43 Notes to and Forming part of the Financial Statements...... 44
2010 annual report Fiji Development Bank and its Subsidiary Company 36 Directors’ Report Year Ended 30 June 2010
In accordance with the resolution of the Board of Directors, the directors herewith submit the statement of financial position of the Fiji Development Bank and its subsidiary as at 30 June 2010, the related Statement of Comprehensive Income, Statement of Cash Flows and Statement of Changes in Equity for the year ended on that date and report as follows.
DIRECTORS The following were directors of the Bank at any time during the financial year and up to the date of this report:
Current Directors Mr. John Prasad - Chairperson Mr. Jitoko Tikolevu - Deputy Chairperson Mr. Ilaisa Cavu Mr. Josefa Serulagilagi Mr. Isikeli Tikoduadua Mr. Manasa Vaniqi Mr. Mason Smith
Former Director Dr. Richard Beyer
PRINCIPAL ACTIVITIES The principal business activities of the Bank during the course of the financial year were providing finance, financial and advisory services to assist in the development of agriculture, commerce and industry in Fiji. There were no significant changes in the nature of the activities of the Bank during the year.
RESULTS The consolidated operating profit after income tax expense for the year ended 30 June 2010 was $2,351,897 (2009 – $3,492,887).
The operating profit for the Bank for the year was $2,357,608 (2009 - $3,475,840).
DIVIDENDS The directors recommend that no dividend be declared or paid.
BAD AND DOUBTFUL DEBTS Prior to the completion of the company’s financial statements, the directors took reasonable steps to ascertain that action had been taken in relation to the writing off of bad debts and the allowance for doubtful debts. In the opinion of the directors, adequate allowance has been made for doubtful debts.
As at the date of this report, the directors are not aware of any circumstances, which would render the amount written off for bad debts, or the allowance for doubtful debts in the company inadequate to any substantial extent.
UNUSUAL TRANSACTIONS Apart from these matters and other matters specifically referred to in the financial statements, in the opinion of the directors, the results of the operations of the Bank during the year were not substantially affected by any item, transaction or event of a material and unusual nature likely, in the opinion of the directors, to affect substantially the results of the operations of the Bank in the current financial year, other than those reflected in the financial statements. Fiji Development Bank and its Subsidiary Company Directors’ Report 37 Year Ended 30 June 2010 (con’t)
SIGNIFICANT EVENT The Bank lent $23.2 million to Vuksich & Borich Fiji Ltd (“V&B”) for the development of the Momi Bay Road and pipeline at Momi Bay on the back of a Government guarantee as part of V&B’s public private partnership with Government. At 30 June 2010, the amount outstanding on this account including interest was $31.9 million.
On 18 June 2010, the Government enacted the Momi Bay Development Decree 2010. Under this decree, the Bank is unable to enforce the terms and conditions of the loan to V&B until such time as the Momi Bay Integrated Resort Development are completed, including in particular, the completion of the hotel at Momi Bay. As a result, the Bank has made provisions for possible credit loss on this account in light of the uncertainty surrounding the completion of the development.
EVENTS SUBSEQUENT TO BALANCE DATE There has not arisen in the interval between the end of the financial year and the date of this report any item or transaction of a material and unusual nature likely, in the opinion of the directors, to affect significantly the operations of the Bank or its subsidiary company, the results of those or the state of the Bank or its subsequent financial years.
OTHER CIRCUMSTANCES As at the date of this report:
(i) no charge on the assets of the Bank has been given since the end of the financial year to secure liabilities of any other person; (ii) no contingent liabilities have arisen since the end of the financial year for which the Bank could become liable; and (iii) no contingent liabilities or other liabilities of the Bank has become or is likely to become enforceable within the year of twelve months after the end of the financial year which, in the opinion of the directors, will or may substantially affect the ability of the Bank and the subsidiary company to meet its obligations as and when they fall due.
As at the date of this report, the directors are not aware of any circumstances that have arisen, not otherwise dealt with in this report or the Bank’s financial statements, which would make adherence to the existing method of valuation of assets or liabilities of the Bank misleading or inappropriate.
DIRECTORS’ BENEFITS Since the end of the previous financial year, no director has received or become entitled to receive a benefit (other than those included in the aggregate amount of emoluments received or due and receivable by the directors shown in the financial statements or received as the fixed salary of a full-time employee of the Bank or of a related corporation) by reason of contract made by the Bank or by a related corporation with the director or with a firm of which he is a member, or with a company in which he has a substantial financial interest.
Signed on behalf of the Board of Directors in accordance with a resolution of the directors this 21st day of December 2010.
Director Director 38 Fiji Development Bank And Its Subsidiary Statement By Directors Year Ended 30 June 2010
In accordance with a resolution of the Board of Directors of Fiji Development Bank, we state that in the opinion of the directors:
(i) the accompanying statement of comprehensive income of the Bank and subsidiary is drawn up so as to give a true and fair view of the results of the group for the year ended 30 June 2010;
(ii) the accompanying statement of changes in equity of the Bank and subsidiary is drawn up so as to give a true and fair view of the changes in equity of the group for the year ended 30 June 2010;
(iii) the accompanying statement of financial position of the Bank and subsidiary is drawn up so as to give a true and fair view of the state of affairs of the group as at 30 June 2010;
(iv) the accompanying statement of cash flows of the Bank and subsidiary is drawn up so as to give a true and fair view of the cash flows of the group for the year ended 30 June 2010;
(v) at the date of this statement there are reasonable grounds to believe the Bank and subsidiary will be able to pay its debts as and when they fall due; and
(vi) all related party transactions have been adequately recorded in the books of the Bank and subsidiary.
Signed on behalf of the board of directors in accordance with a resolution of the directors this 21st day of December 2010.
Director Director 39 Independent Audit Report
8th Floor, Ratu Sukuna House, MacArthur Street, ACHIEVEMENT IN - P.O.Box 2214, BUSINESS EXCELLENCE Government Building, THROUGH QUALITY Suva, Fiji Islands MANAGEMENT
Scope
I have audited the financial statements of the Fiji Development Bank for the financial year ended 30 June 2010, consisting of the statement of financial position, statement of comprehensive income, statement of changes in equity, statement of cash flows and a summary of significant accounting policies and other explanatory notes. The financial statements comprise the financial statements of the Bank and the consolidated financial statements of the Group, being the Bank and its subsidiary. The Bank’s directors are responsible for the preparation and presentation of the financial statements and the information they contain. I have conducted an independent audit of these financial statements in order to express an opinion on them to the members of the Bank and its subsidiary.
My audit has been conducted in accordance with International Standards on Auditing to provide reasonable assurance as to whether the financial statements are free of material misstatement. My procedures included examination on a test basis, of evidence supporting the amounts and other disclosures in the financial statements and the evaluation of accounting policies and significant accounting estimates. These procedures have been undertaken to form an opinion, as to whether, in all material aspects, the financial statements are presented fairly in accordance with International Financial Reporting Standards and statutory requirements which is consistent with my understanding of the Bank’s and the Group’s financial position and the results of their operations and cash flows.
The audit opinion expressed in this report has been formed on the above basis.
Audit Opinion
In my opinion:
(a) proper books of account have been kept by the Bank and the Group, so far as it appears from my examination of those books; and
(b) the accompanying financial statements which have been prepared in accordance with International Financial Reporting Standards:
(i) are in agreement with the books of account; and
(ii) to the best of my information and according to the explanations given to me:
(a) give a true and fair view of the state of affairs of the Bank and of the Group as at 30 June 2010 and of the results, cash flows and changes in equity of the Bank and the Group for the year ended on that date; and
(b) give the information required by Section 35 of the Fiji Development Bank Act in the manner so required.
I have obtained all the information and explanations which, to the best of my knowledge and belief, were necessary for the purpose of my audit.
Tevita Bolanavanua AUDITOR GENERAL Fiji Development Bank and its Subsidiary Company 40 Statement of Financial Position As at 30 June 2010
Notes CONSOLIDATED THE BANK 2010 2009 2010 2009 $ $ $ $
Assets Cash and cash equivalents 21,556,022 33,267,104 21,512,938 33,219,645 Loans and advances 6 336,868,068 356,051,842 336,868,068 356,051,842 Investment in subsidiary 7 - - 20,000 20,000 Investments 8 50,251 50,251 50,251 50,251 Land held for resale 9 513,149 441,341 513,149 441,341 Property, plant and equipment 10 15,372,324 15,583,638 15,372,324 15,583,638 Intangibles 11 56,763 - 56,763 - Other debtors 12 4,326,700 2,851,694 4,324,052 2,848,098
TOTAL ASSETS 378,743,277 408,245,870 378,717,545 408,214,815
Liabilities Bonds - Held-to-maturity 13 219,230,487 254,141,199 219,230,487 254,141,199 Short term borrowings 14 34,706,928 30,423,853 34,706,928 30,423,853 Employee entitlements 15 1,566,906 1,321,828 1,566,906 1,321,828 Defered income 2,023,282 2,149,824 2,023,282 2,149,824 Accounts payable and accruals 16 5,067,202 6,092,467 5,059,555 6,085,209 Other liabilities 17 5,407,521 5,727,644 5,407,521 5,727,644
TOTAL LIABILITIES 268,002,326 299,856,815 267,994,679 299,849,557
Equity
Capital 18 56,050,636 56,050,636 56,050,636 56,050,636 Reserves 11,187,562 11,187,562 11,187,562 11,187,562 Accumulated profits 43,502,753 41,150,857 43,484,668 41,127,060
Total capital and reserves 110,740,951 108,389,055 110,722,866 108,365,258
TOTAL LIABILITIES AND EQUITY 378,743,277 408,245,870 378,717,545 408,214,815
On behalf of the Board Director Director
The statement of financial position is to be read in conjunction with the notes to and forming part of the financial statements set out on pages 44 to 64. Fiji Development Bank and its Subsidiary Company Statements of Comprehensive Income 41 For the Year Ended 30 June 2010
Notes CONSOLIDATED THE BANK 2010 2009 2010 2009 $ $ $ $
INCOME Interest Income 2 30,364,508 39,240,723 30,363,558 39,239,174 Interest expense 18,197,122 14,668,517 18,197,122 14,668,517
Net Interest income 12,167,386 24,572,206 12,166,436 24,570,657
Fee Income 3 4,041,258 2,188,065 4,041,258 2,188,065 Other income 4 2,855,221 3,209,839 2,855,221 3,190,989
OPERATING INCOME 19,063,865 29,970,110 19,062,915 29,949,711
OPERATING EXPENSES 5 10,119,528 10,280,965 10,112,867 10,277,613
OPERATING PROFIT BEFORE ALLOWANCES 8,944,337 19,689,145 8,950,048 19,672,098
Allowance for credit impairment 6 6,592,440 14,676,258 6,592,440 14,676,258 Diminution in investments 8 - 1,520,000 - 1,520,000
OPERATING PROFIT BEFORE INCOME TAX EXPENSE 2,351,897 3,492,887 2,357,608 3,475,840
Income tax expense 1(p) - - - -
OPERATING PROFIT AFTER INCOME TAX 2,351,897 3,492,887 2,357,608 3,475,840
The statement of comprehensive income is to be read in conjunction with the notes to and forming part of the financial statements set out on pages 44 to 64. Fiji Development Bank and its Subsidiary Company 42 Consolidated Statement of Cash Flow For the Year Ended 30 June 2010
2010 2009 $ $ Inflows Inflows Notes (Outflows) (Outflows
OPERATING ACTIVITIES Interest and subsidy received 24,005,128 41,645,850 Interest and other costs of borrowing paid (17,760,565) (15,390,705) Dividends received 18,689 - Fees received 4,041,258 2,188,065 Cash paid to suppliers and employees (11,228,611) (7,782,049) Other receipts 2,977,819 2,648,732
Net cash from by operating activities 24 (ii) 2,053,718 23,309,893
INVESTING ACTIVITIES Customer loans granted (53,536,529) (47,790,788) Customer loans repaid 71,164,356 64,020,568 Payments for property, plant and equipment (688,756) (1,651,946) Receipts from disposal of property and equipment 38,500 122,130 Payments for land held for resale (71,809) (3,568) Net cash from investing activities 16,905,762 14,696,397
FINANCING ACTIVITIES Proceeds from long-term borrowings 48,904,363 72,652,688 Repayment of long-term borrowings (83,858,000) (7,500,000) Net increase/(decrease) in short-term borrowing 4,283,075 (81,498,298)
Net cash used in financing activities (30,670,562) (16,345,610)
Net (decrease)/increase in cash and cash equivalent (11,711,082) 21,660,679 Cash at the beginning of the financial year 33,267,104 11,606,425
Cash at the end of the financial year 24 (i) 21,556,022 33,267,104
The consolidated statement of cash flows is to be read in conjunction with the notes to and forming part of the financial statements set out on pages 44 to 64. Fiji Development Bank and its Subsidiary Company Statement of Changes in Equity 43 For the Year Ended 30 June 2010
CONSOLIDATED Notes Capital General Revaluation Accumulated Total reserve reserve profits $ $ $ $ $
Balance at 30 June 2008 18 56,050,636 2,500,000 3,123,562 37,657,970 99,332,168 Net profit for the year - - - 3,492,887 3,492,887
Opening retained earnings as restated at 30 June 2009 56,050,636 2,500,000 3,123,562 41,150,857 102,825,055
General Reserve for Credit Losses at 30 June 2009 - 5,564,000 - - 5,564,000
Net profit for the year - - - 2,351,897 2,351,897
Balance at 30 June 2010 56,050,636 8,064,000 3,123,562 43,502,753 110,740,951
THE BANK Capital General Revaluation Accumulated Total reserve reserve profits $ $ $ $ $
Balance at 30 June 2008 18 56,050,636 2,500,000 3,123,562 37,651,220 99,332,168 Net profit for the year - - - 3,475,840 3,475,840
Opening retained earnings as restated at 30 June 2009 56,050,636 2,500,000 3,123,562 41,127,060 102,801,258
General Reserve for Credit Losses - at 30 June 2009 5,564,000 - - 5,564,000
Net profit for the year - - - 2,357,608 2,357,608
Balance at 30 June 2010 56,050,636 8,064,000 3,123,562 43,484,668 110,722,866
The statements of changes in equity are to be read in conjunction with the notes to and forming part of the financial statements set out on pages 44 to 64. Fiji Development Bank and its Subsidiary Company 44 Notes to and Forming Part of the Financial Statements For the Year Ended 30 June 2010
1 statement OF SIGNIFICANT ACCOUNTING POLICIES Fiji Development Bank is a fully owned Government of Fiji (“Government”) entity domiciled in Fiji. The address of the registered office is 360 Victoria Parade, Suva, Fiji. The consolidated financial statements of the Bank for the year ended 30 June 2010 comprise the Bank and its subsidiary company. The Bank is primarily involved in the provision of finance, financial and advisory services to assist in the development of agriculture, commerce and industry in Fiji.
The financial statements were authorised for issue by the Directors on 2 September 2010.
The significant policies which have been adopted in the preparation of these financial statements are:
(a) Statement of compliance The financial statements are presented in Fiji dollars, rounded to the nearest dollar. The financial statements of the Bank have been drawn up in accordance with the International Financial Reporting Standards (“IFRS”) and the requirements of the law.
(b) basis of preparation The measurement base adopted is that of historical cost as modified by the fair value measurement of Available for Sale financial assets and Financial Instruments held at Fair Value through the statement of comprehensive income.
(c) Use of estimates and judgements The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected.
In particular, information about significant areas of estimation uncertainty and critical judgments in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements including the following notes: • Note 1(g) – Plant and equipment impairment; and • Note 1(i) – Allowance for credit impairment
(d) Principles of consolidation Subsidiary The consolidated financial statements of the Group include the financial statements of the Bank being the chief entity and its controlled entity as disclosed in Note 7. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an enterprise so as to obtain benefits from its activities. The financial statement of the subsidiary is included in the consolidated financial statements from the date that control commences until the date that controls ceases.
Transactions eliminated on consolidation The balances and effects of transactions between the Bank and the controlled entity have been eliminated.
(e) Revenue recognition Revenue is recognised to the extent that it is probable that economic benefits will flow to the Bank and that the revenue can be reliably measured. The principal sources of revenue are interest income, government interest subsidies and fees and charges.
Interest income Interest income on investments, loans and advances is recognised as it accrues. Interest on impaired loans is recognised as income only when received.
Unearned interest on lease finance is brought into account at the time of realisation. Fiji Development Bank and its Subsidiary Company Notes to and Forming Part of the Financial Statements 45 For the Year Ended 30 June 2010 (con’t)
(e) Revenue recognition (con’t) Government interest subsidies Government provides interest subsidies on certain loans schemes. These interest subsidies are recognised as interest income as they accrue.
Fees and charges lending fees
Fees and direct costs relating to loan origination, financing or restructuring and to loan commitments are deferred and amortised to interest income over the life of the loan using the effective yield method. Lending fees not directly related to the origination of a loan are recognised over the period of service.
Other fees and charges When other fees and charges relate to specific transactions or events, they are recognised in the statement of comprehensive income when the service is provided to the customer. When they are charged for services provided over a period, they are taken to income on an accruals basis as the service is provided.
Fees on impaired loans are recognised as income only when received.
(f) bonds – Held-to-maturity FDB registered bonds are recorded at face value. The discount on these bonds is amortized on a straight-line basis over the term of the bond to which it relates.
(g) property, plant and equipment acquisition Items of property, plant and equipment are recorded at cost and depreciated as outlined below. Items purchased at less than $500 are expensed.
Revaluation Revaluations reflect independent assessments of the fair market value of land and buildings based on existing use. Revaluation increments or decrements are credited or debited directly to the statement of comprehensive income, respectively.
All other items of property, plant and equipment are carried at cost less accumulated depreciation and impairment losses.
Depreciation Property, plant and equipment with the exception of freehold and leasehold land are written off over their expected useful lives using the straight-line method of depreciation at the following rates, whilst leasehold improvements are amortised over the shorter of their useful lives and the terms of their respective leases.
Buildings and improvements 1-2% Plant, equipment, furniture and fittings 10% Motor vehicles 20% Computer hardware 20% Computer software 20% Leasehold land Term of the lease Fiji Development Bank and its Subsidiary Company 46 Notes to and Forming Part of the Financial Statements For the Year Ended 30 June 2010 (con’t)
(g) property, plant and equipment (con’t) The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. If any such indication exists and where the carrying values exceed the estimated recoverable amount, the asset or cash-generating units are written down to their recoverable amount. The recoverable amount of property, plant and equipment is the greater of net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. Impairment losses are recognised in the statement of comprehensive income.
(h) Loans and advances Loans and advances net of lending allowances include direct finance provided to customers such as term loans, lease finance, working capital and import letter of credits.
Term loans are carried at principal balances outstanding plus interest accrued. Finance leases are shown net of unearned interest. There were no new finance leases granted in the current financial year.
policies adopted in classifying loans Each customer account is graded individually using established guidelines. Critical factors include collectability of all principal and interest based on the contractual agreement and the security offered by the borrower.
impaired and past due assets The Bank has disclosed components of its loan portfolio that have been classified as impaired and past due assets. The following broad categories have been used in classifying impaired and past due assets:
(i) Non-accrual loans A loan is classified as non-accrual if there is reasonable doubt over the ultimate recoverability of the principal or interest based on the contractual agreement. Non accrual loans are those where interest and fees receivable, are not realised in the statement of comprehensive income but are recognised only when received.
(ii) Restructured loans Restructured loans are those where the original terms of the contract have been modified to provide concessions of principal and/or interest to the borrower because of financial difficulties.
(iii) Past due loans Facilities that are classified under past due are loans that are more than 30 days in arrears but which are not non-accrual.
(i) bad and doubtful loans and advances Loan accounts are reviewed throughout the year to assess the allowance for bad and doubtful loan requirements. The Bank has individually assessed allowances and collectively assessed allowances.
individually assessed allowances Individually assessed allowance is maintained to cover identified doubtful debts. All known bad debts are written off in the year in which they are identified. The individually assessed allowance requirement (representing new and increased individually assessed allowances less individually assessed releases) is taken to the statement of comprehensive income.
Fiji Development Bank and its Subsidiary Company Notes to and Forming Part of the Financial Statements 47 For the Year Ended 30 June 2010 (con’t)
(i) bad and doubtful loans and advances (con’t) Individually assessed allowances are made against individually significant financial assets and those that are not individually significant, including groups of financial assets with similar credit risk characteristics. The determination of the amount of specific allowance is based on many factors including credit evaluation of the borrowers, value of security and collateral held, current economic conditions and past experience.
Recoveries, representing excess transfers to the specific allowance, are credited to the statement of comprehensive income.
unallocated individually assessed allowances An unallocated individually assessed allowance is maintained by the Bank on loans graded substandard and below. This policy is in accordance with the Reserve Bank of Fiji’s minimum provisioning guidelines. The percentages applied to the respective grades are as follows:
Substandard 20% of the loan balance Doubtful 50% of the loan balance Loss 100% of difference between loan balance and security realizable value
Collective allowance All other loans and advances that do not have an individually assessed allowance are assessed collectively for impairment. Collective allowances are maintained to reduce the carrying amount of portfolios of similar loans and advances to their estimated recoverable amounts at the balance date. The annual charge against profits for bad and doubtful debts reflects new collective allowances.
Collective allowance is maintained on all loans based on the Credit Risk Rating “(CRR)” and is allocated monthly to reflect the highest risk. The collective allowance is based on a percentage and is reviewed on a yearly basis.
General reserve for credit loss A general reserve for credit loss is maintained for all accounts for possible losses inherent in the loan portfolio. This policy is in accordance with the Reserve Bank of Fiji minimum provisioning guidelines.
bad debts written off / recovered Bad debts are written off against the allowance in the year in which the debt is recognised as being irrecoverable. Where not previously included in the allowance, bad debts are written off directly against the statement of comprehensive income. Debts previously written off and subsequently recovered are written back to the statement of comprehensive income in the year in which they are recovered.
impairment The Bank assesses at each balance date whether there is any objective evidence of impairment.
If there is objective evidence that an impairment loss on loans, advances and other receivables has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of the expected future cash flows (excluding future credit losses that have not been incurred), discounted at the financial asset’s original effective interest rate. Short- term balances are not discounted.
(j) investments Investments are those that the Bank has purchased with positive intent and ability to hold until maturity. These securities are recorded at cost or at cost adjusted for amortisation of premium or discounts. Premiums and discounts are capitalised and amortised from date of purchase to maturity. Interest income is accrued. Borrowing costs are recognised as expenses in the period in which they are incurred. 48 Fiji Development Bank and its Subsidiary Company Notes to and Forming Part of the Financial Statements For the Year Ended 30 June 2010 (con’t)
(j) investments (con’t) Equity investments in companies that are not subsidiaries are carried at the lower of cost and net realisable value. Marketable equity securities are valued at the lower of cost and market value.
(k) transactions in foreign currencies Borrowings and amounts payable in foreign currencies have been translated to Fiji dollars at the exchange rates ruling at balance date. Exchange gains and losses whether realised or unrealised, for which exchange risk cover has not been provided by the Government, are recognised in full in the statement of comprehensive income.
(l) land held for sale The Cane Estate and other land held for subdivision and resale are carried at the lower of cost and net realisable value. Cost includes the costs of acquisition and development.
(m) Cash Cash includes cash on hand and other amounts which are integral to the cash management function and which are not subject to a term facility.
(n) other debtors Other receivables are stated at cost less impairment losses.
(o) accounts payable and accruals Accounts payable and accruals are stated at cost.
(p) taxation The Bank has made no provision for taxation, as it is not subject to income tax in accordance with section 17(29) of the Income Tax Act; 1985. The Bank’s subsidiary adopts the principles of tax effect accounting.
(q) employee entitlements annual leave The accrual for annual leave represents the amount which the Bank has a present obligation to pay, resulting from employees’ services provided up to the balance date. The accrual is based on current wage and salary rates and includes related on-costs.
long service leave The liability for employees’ entitlements to long service leave represents the amount payable to employees, based on current wage and salary rates, for services provided up to balance date. The liability for long service leave increases according to the number of years of service completed by the employee.
Gratuity The accrual for gratuity represents amounts payable to employees who have achieved in excess of the minimum ten years of service on retirement, and is based on current wage and salary rates.
triennial leave The triennial leave is payable to employees on completion of every three years of service and is based on staff’s grade.
number of Employees The number of employees as at 30 June 2010 was 198 (2009: 197). Fiji Development Bank and its Subsidiary Company 49 Notes to and Forming Part of the Financial Statements For the Year Ended 30 June 2010 (con’t)
(r) Contingent Liabilities and Credit Commitments The Bank is involved in a range of transactions that give rise to contingent and / or future liabilities. The Bank discloses a contingent liability when it has a possible obligation arising from past events that will be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the Bank’s control. A contingent liability is disclosed when a present obligation is not recognised because it is not probable that an outflow of resources will be required to settle an obligation, or the amount of the obligation cannot be measured with sufficient reliability.
The Bank issues commitments to extend credit, letters of credit, guarantees and other credit facilities. These financial instruments attract fees in line with market prices for similar arrangements. They are not sold or traded. The items generally do not involve cash payments other than in the event of default. The fee pricing is set as part of the broader customer credit process and reflects the probability of default. They are recorded as contingent liabilities at their face value.
Information on the face value and credit equivalents of Commitments and Contingent Liabilities shown in Note 19.
(s) Capital grants from Government Capital grants received from Government are credited directly to equity.
(t) deferred income Deferred income represents establishment fees charged and is deferred and amortised over the life of the loan.
50 Fiji Development Bank and its Subsidiary Company Notes to and Forming Part of the Financial Statements For the Year Ended 30 June 2010 (con’t)
CONSOLIDATED THE BANK 2010 2009 2010 2009 $ $ $ $
2 interest INCOME Included in interest income are interest subsidies received / receivable from the Government for: - Agricultural loans 858,259 591,021 858,259 591,021 - Commercial Loans to Fijians scheme 1,838,499 2,101,808 1,838,499 2,101,808 - Economic Rehabilitation Package Scheme 169,722 199,330 169,722 199,330 - Small Business Scheme 298,581 302,188 298,581 302,188 - Northern Rehabilitation Package 230,720 274,405 230,720 274,405
3,395,781 3,468,752 3,395,781 3,468,752
3 FEE INCOME Application fees 76,262 58,702 76,262 58,702 Establishment fees 547,849 766,966 547,849 766,966 Commitment fees 169,333 88,566 169,333 88,566 Bank Service fees 1,775,058 1,318,801 1,775,058 1,318,801 Arrears fees 1,028,048 (609,792) 1,028,048 (609,792) Legal fees 443,314 563,355 443,314 563,355 Other fee income 1,394 1,467 1,394 1,467
4,041,258 2,188,065 4,041,258 2,188,065
4 otHER INCOME The following items are included in other income:
Gain on sale of property, plant and equipment 27,200 64,151 27,200 64,151 Bad debt recovered 808,346 960,653 808,346 960,653 Insurance commission 156,906 218,693 156,906 218,693 Rental income 528,192 500,667 528,192 500,667
5 OPERATING EXPENSES Items included in administrative expenses: Amortisation of bond discounts 708 920 708 920 Auditors’ remuneration 39,996 43,142 39,996 40,031 Directors’ fees 99,552 114,502 99,552 114,502 Depreciation 829,491 765,198 829,491 765,198 Loss on property, plant and equipment 2,516 12,004 2,516 12,004 Employee costs 6,886,168 6,387,920 6,886,168 6,387,920 Fiji Development Bank and its Subsidiary Company 51 Notes to and Forming Part of the Financial Statements For the Year Ended 30 June 2010 (con’t)
CONSOLIDATED THE BANK 2010 2009 2010 2009 $ $ $ $
6 loans AND ADVANCES
Loans and advances 437,863,359 433,258,018 437,863,359 433,258,018 Less: Interest and fees suspended 33,816,344 14,872,810 33,816,344 14,872,810
404,047,015 418,385,208 404,047,015 418,385,208 Less: Allowance for credit impairment 67,178,947 62,333,366 67,178,947 62,333,366
Total loans and advances 336,868,068 356,051,842 336,868,068 356,051,842
Loans and advances include finance lease provided to customers as well. There were no new finance leases granted in the current financial year.
Allowance for credit impairment is represented as follows:
Individually assessed allowance Balance at the beginning of the year 31,018,882 22,180,456 31,018,882 22,180,456 Charge/(credit) to the statement of comprehensive income 9,377,901 9,205,644 9,377,901 9,205,644 40,396,783 31,386,100 40,396,783 31,386,100 Written off as bad debts against allowance for credit impairment (1,746,859) (367,218) (1,746,859) (367,218)
Balance at the end of the year 38,649,924 31,018,882 38,649,924 31,018,882
Unallocated Individually assessed allowance Balance at beginning of year 20,606,540 23,920,138 20,606,540 23,920,138 Charge/(credit) to the statement of comprehensive income (1,000,000) 2,954,131 (1,000,000) 2,954,131 Transfer to individually assessed allowance (703,729) - (703,729) Transfer to general loan reserve - (5,564,000) - (5,564,000)
Balance at the end of the year 19,606,540 20,606,540 19,606,540 20,606,540
Collectively assessed allowance Balance at beginning of year 10,707,944 8,191,461 10,707,944 8,191,461 Charge/(credit) to the statement of comprehensive income (1,785,461) 2,516,483 (1,785,461) 2,516,483
Balance at the end of the year 8,922,483 10,707,944 8,922,483 10,707,944
Total allowance for credit impairment 67,178,947 62,333,366 67,178,947 62,333,366 52 Fiji Development Bank and its Subsidiary Company Notes to and Forming Part of the Financial Statements For the Year Ended 30 June 2010 (con’t)
CONSOLIDATED THE BANK 2010 2009 2010 2009 $ $ $ $
7 inVESTMENT IN SUBSIDIARY
FDB Nominees Ltd - - 20,000 20,000
The Bank has 100% beneficial interest in the ordinary share capital of the subsidiary company which is incorporated in Fiji.
8 inVESTMENTS
Shares in companies - at cost 6,634,541 6,634,541 6,634,541 6,634,541 Less: Allowance for diminution in value (6,584,290) (6,584,290) (6,584,290) (6,584,290) 50,251 50,251 50,251 50,251 Allowance for dimunition in investments is represented as follows:
Balance at the beginning of the year 6,584,290 5,064,290 6,584,290 5,064,290 Charge to the statement of comprehensive income - 1,520,000 - 1,520,000
Balance at the end of the year 6,584,290 6,584,290 6,584,290 6,584,290
The Bank does not have a significant control in investment other then FDB Nominees Ltd and Tokatoka Nadrau Investments Ltd. Therefore, the Bank records these investments at the lower of the cost and net realisable value. The Bank has significant control over FDB Nominees Ltd and thus the investment is consolidated with the total Banks operation. However, the investment in TokaToka Nadrau Investments Ltd is acquired and held exclusively with a view to its disposal in the near future, thus is not consolidated.
9 land HELD FOR RESALE
Nasarawaqa Estate
Cost 99,426 99,426 99,426 99,426 Less: Allowance for diminution in value (51,950) (51,950) (51,950) (51,950) 47,476 47,476 47,476 47,476 Contributions to project (4,895) (4,895) (4,895) (4,895) 42,581 42,581 42,581 42,581 Cane Estate
Cost 1,000,000 1,000,000 1,000,000 1,000,000 Other expenses capitalised 370,568 298,759 370,568 298,759
1,370,568 1,298,759 1,370,568 1,298,759 Less: Allowance for dimunition in value 900,000 900,000 900,000 900,000 470,568 398,759 470,568 398,759 Balance at the end of the year 513,149 441,341 513,149 441,341 Fiji Development Bank and its Subsidiary Company 53 Notes to and Forming Part of the Financial Statements For the Year Ended 30 June 2010 (con’t)
CONSOLIDATED AND THE BANK Land and Plant and Fixtures and Total buildings equipment fittings $ $ $ $
10 property, PLANT AND EQUIPMENT
Balance at beginning of the year 13,181,030 3,671,000 5 6 7, 611 17,419,641 Acquisitions during the year 76,095 548,799 1,085 625,979 Disposals - (136,047) (1,350) (137,397) Balance at end of the year 13,257,125 4,083,752 567,346 17,908,223
Accumulated Depreciation Balance at beginning of the year 607,440 774,030 454,534 1,836,004 Depreciation charge for the year 192,385 583,187 47,904 823,476 Disposals - (122,771) (810) (123,581)
Balance at end of the year 799,825 1,234,446 501,628 2,535,899
Carrying amount Balance at beginning of year 12,573,590 2,896,970 113,077 15,583,637
Balance at end of the year 12,457,300 2,849,306 65,718 15,372,324
The Directors have adopted a policy of obtaining regular independent valuations for the Bank’s properties on an existing use basis of valuation. The authority and frequency of any revaluation made is solely at the discretion of the Board of Directors.
11 computer SOFTWARE - INTANGIBLES Total
Balance at beginning of the year - In-house development cost 49,679 Acqusitions during the year 13,098
Balance at end of the year 62,777
Accumulated Depreciation Balance at beginning of the year - Depreciation charge for the year 6,014
Balance at end of the year 6,014
Carrying amount Balance at beginning of year - Balance at end of the year 56,763
The Bank had developed the Bank Management System which was launched in December 2009. Prior to this the Bank was using the Loan Management System. The acqusition represent purchase of an additional module for upgrading of the Sun System. 54 Fiji Development Bank and its Subsidiary Company Notes to and Forming Part of the Financial Statements For the Year Ended 30 June 2010 (con’t)
CONSOLIDATED THE BANK 2010 2009 2010 2009 $ $ $ $
12 otHER DEBTORS
Government guarantees 5,039,571 5,039,571 5,039,571 5,039,571 Less allowance for loss - (5,039,571) (5,039,571) (5,039,571) (5,039,571) Government Guarantee - - - -
Government interest subsidies 2,994,074 1,757,610 2,994,074 1,757,610 Others 1,332,626 1,094,084 1,329,978 1,090,488 4,326,700 2,851,694 4,324,052 2,848,098
13 bonds - Held-to-maturity
Non-current FDB Registered bonds - face value 219,182,850 254,088,850 219,182,850 254,088,850 Unamortised discount 47,637 52,349 47,637 52,349 219,230,487 254,141,199 219,230,487 254,141,199
The above registered bonds have a repayment term varying between 1 to 10 years and have been guaranteed by Government of Fiji
14 borrowings
Short term borrowings 34,706,928 30,423,853 34,706,928 30,423,853
The above borrowings have a repayment term of less than 1year and have been guaranteed by Government of Fiji. The interest rate for the short term borrowing ranges from 3.50% to 9.15%.
15 EMPLOYEE ENTITLEMENTS
Balance as at June 2009 1,321,828 1,241,568 1,321,828 1,241,568 Amount utilised (38,488) (17,325) (38,488) (17,325) Expense for the year 283,566 97,585 283,566 97,585 Balance as at June 2010 1,566,9066 1,321,828 1,566,906 1,321,828
16 accounts PAYABLE AND ACCRUALS
Interest accruals 3,182,905 2,841,152 3,182,905 2,841,152 Others 1,884,297 3,251,316 1,876,650 3,244,058 5,067,202 6,092,467 5,059,555 6,085,209 Fiji Development Bank and its Subsidiary Company 55 Notes to and Forming Part of the Financial Statements For the Year Ended 30 June 2010 (con’t)
CONSOLIDATED THE BANK 2010 2009 2010 2009 $ $ $ $
17 otHER LIABILITIES
Seed Capital Fund 2,774,670 2,719,205 2,774,670 2,719,205 Staff Savings account 1,282,944 1,238,112 1,282,944 1,238,112 Export Facility 1,194,100 1,477,157 1,194,100 1,477,157 Farmers Assistance Scheme 155,808 293,170 155,808 293,170 5,407,521 5,727,644 5,407,521 5,727,644
Seed Capital Fund is a revolving fund from the Government of Fiji for lending to specialised business activities in forestry, fishing and eco- tourism. Principal repayments for the seed capital loans are added back to the initial fund for re-lending. Seed Capital Fund amounts that are not utilised are repayable to the Government.
Staff savings are stated at cost and are repayable on demand at an average interest rate of 4% per annum.
18 capital
Authorised capital 100,000,000 100,000,000 100,000,000 100,000,000
Contributed capital 56,050,636 56,050,636 56,050,636 56,050,636
The Bank was formed by the Act of Parliament and the contributed capital of $56,050,636 consists of equity contribution from the Government of Fiji.
19 commitments AND CONTINGENT LIABILITIES
(a) Commitments
(i) Loans approved but not disbursed 20,772,964 35,521,671
20,772,964 35,521,671 (b) Contingent liabilities
(i) Guarantees 1,450,000 750,000
The Bank has claims by former customers and a former employee for specified and unspecified losses or damages relating to actions taken by the Bank in the normal course of operations. The Directors and Management of the Bank deny these claims, or are defending these claims rigorously and are of the opinion that these claims will be unsuccessful. 56 Fiji Development Bank and its Subsidiary Company Notes to and Forming Part of the Financial Statements For the Year Ended 30 June 2010 (con’t)
20 related PARTY transactions
Directors The following were directors of the Bank duirng the financial year ended 30 June 2010:
Current Directors Mr John Prasad - Chairperson Mr Jitoko Tikolevu Mr Ilaisa Cavu Mr Josefa Serulagilagi Mr Manasa Vaniqi Mr Isikeli Tikoduadua - Appointed on 20/01/2010 Mr Mason Smith - Appointed on 30/11/2009
Former Directors Mr Richard Beyer
CONSOLIDATED THE BANK 2010 2009 2010 2009 $ $ $ $
Directors’ fees 99,552 114,502 99,552 114,502
Key Management Personnel
Details of compensation Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including any director (whether executive or otherwise) of that entity.
During the year the following persons were the executives identified as key management personnel, with the greatest authority and responsibility for the planning, directing and controlling the activities of the Bank.
Name Current title Deve Toganivalu Chief Executive Officer Umarji Musa General Manager Operations Tevita Madigibuli General Manager Operations (effective from 07/06/2010) Lasantha Thennakoon General Manager Finance and Administration Saiyad Hussain General Manager Finance and Administration (effective from 08/02/2010) Nafitalai Cakacaka General Manager Business Risk Services
The aggregate compensation of the key management personnel comprises only short-term benefits and is set out below:
Fiji Development Bank and its Subsidiary Company 57 Notes to and Forming Part of the Financial Statements For the Year Ended 30 June 2010 (con’t)
20 related PARTY TRANSACTIONS (con’t) CONSOLIDATED THE BANK 2010 2009 2010 2009 $ $ $ $
Short-term benefits 540,921 578,035 540,921 578,035
The Key Management Personnel are contracted employees and are only entitled to short term benefits only. There is no long term benefits payable.
Loans amounting to $284,338.88 (2009: $241,636.61 ) to executives are included in “Loans Advances” ( refer note 6). The loans were provided under normal terms and conditions.
21 risK MANAGEMENT POLICY
CREDIT RISK Credit Risk is the risk of probable loss brought about by counterparties’ inability to meet contractual obligation. The Credit Risk Framework is in place across the organization with the end-objective of ensuring a structured and disciplined approach in pursuing the targets mutually set by the Board and Management. The framework focuses on corporate mission, policies, procedures, people, skills, values, controls and portfolio balance exposures. It is supported by regular portfolio analysis and detailed underwriting evaluation that identifies risk areas / concentrations, with recommended risk remedies and monitoring procedures in order to avert any probable negative impact of the account and of the portfolio.
The authority to make credit decision is layered. The Board subcommittee known as Board Credit Committee retains the authority to approve loan amounts above a threshold that is set by the Board. On the other hand, the Management (EXCO) has authority and discretion to delegated defined approving limits to Risk Officers under certain conditions. The delegated credit decision authority, particularly below the threshold level is reviewed from time to time on the Officer’s performance, exercise of delegated authority and changes to Bank’s policy guidelines.
The primary support of the credit risk management is the Credit Risk Grading System, which was developed internally and integrates the different qualitative and quantitative variables of a borrower. The grading method takes into focus the history of the borrower, its financial performance, regulatory mandates (e.g. RBF regulations, Basel 2), industry/sectoral outlook, customer’s liquidity to meet his contractual obligation and the probable loss in the event of default, a factor of the security value taken to support the facility. The credit risk grading system is robust and consistently applied on all borrowing customers. Any exceptions or variations on the risk grading for specific borrower is brought to EXCO or Board for final approval.
Forecasts are made using different statistical methodologies and pricing models in order to determine the relative volatility of the portfolios against market conditions. This includes forms of analysis such as but not limited to Value-at-Risk; durated term of loan assets; interest rate elasticity and gaps, with the end-objective of maintaining a balance structure between the bank’s assets and liabilities; and a balance between developmental and commercial activities.
As part of credit risk management process, portfolios are subjected to systematic stress tests in order to determine the probable loss of values due to changes in interest rates (financial market condition), default ratios and durated term structure. The stress testing also covers asymmetric risk-radicals that are unexpectedly sprouted on the portfolio thereby changing the estimated risk pattern previously established. 58 Fiji Development Bank and its Subsidiary Company Notes to and Forming Part of the Financial Statements For the Year Ended 30 June 2010 (con’t)
21 risK MANAGEMENT POLICY (con’t) default Risk Default risk is a risk that some loans may not be repaid; implications of asset mix on risk based capital and asset quality on ability to leverage the bank’s capital.
credit RISK CONCENTRATION
The Bank lends to various industry sectors. The concentration of credit risk in relation to these industry sectors is set out below:
2010 2009 Industry $ $
Agriculture 66,284,670 65,164,676 Building and construction 64,792,711 60,519,096 Manufacturing 41,062,706 39,034,544 Mining and quarrying 1,298,874 1,296,483 Private individuals 57,300,389 62,612,224 Professional and business services 22,457,776 10,002,163 Real estate 120,906,371 117,718,839 Transport, communication and storage 21,516,109 26,932,837 Wholesale, retail, hotels and restaurants 39,522,220 47,4 9 1, 2 7 7 Others 2,721,535 2,485,879 Total 437,863,359 433,258,018
liQUIDITY RISK MANAGEMENT
Liquidity risk pertains to the risk of the bank’s inability to meet maturing obligations as they fall due without incurring unacceptable losses. FDB generates its funding through issuance of bonds, with one to seven years maturities, term deposits and Promissory Notes of maturities less than a year.
The Bank’s executive committee manages the bank’s liquidity and cost of funds. FDB performs daily cash forecast for the next three months (one quarter) to identify any probable liquidity stress points. Corollarily, twice in a month, the bank performs a stress-test on its cost of funds to measure any probable deviation from its forecasted forward rates and cost benchmarks by: • quantifying liquidity outflows in all scenarios for each risk driver; • identifying cash flows to mitigate liquidity shortfalls identified; • determine net liquidity position under each scenario.
Since the bank does not have trading activities nor hedge facilities to cushion unexpected liquidity gaps, it retains a policy of maintaining 10% of its total liability position in liquid assets at all times
Fully aware of maturity mismatched between its assets and liabilities, the bank places a heavy emphasizes on collection efficiency of its lending units. Fiji Development Bank and its Subsidiary Company 59 Notes to and Forming Part of the Financial Statements For the Year Ended 30 June 2010 (con’t)
21 risK MANAGEMENT POLICY (con’t) The determination of the adequacy of FDB’s liquidity position depends upon an analysis of the bank’s position relative to the following factors: • historical funding requirements • current liquidity position • anticipated future funding needs • present and anticipated asset quality • present and future earning capacity • sources of funds.
sensitiVITY ANALYSIS liquidity Risk
Liquidity risk sensitivity due to ± 2.50% fluctuation in weighted average cost of borrowings
As at June Increase in Decrease in 2010 Cost of funds Cost of funds (+2.50%) (-2.50%)
Weighted Average Borrowing Cost (%) 6.59 9.09 4.09 Cost of Borrowing ($) 18,197,122 25,100,431 11,293,813 Profit/(loss) ($) 2,357,608 (4,545,701) 9,260,917
marKET RISK
Market Risk is defined as the risk or losses in on and off-balance sheet positions arising from movements in market prices or interest rates.
The impacts of market risks to FDB are on three dimensions, namely:
• Interest rate movement as it impacts the overall weighted cost of funds; • As it impacts the interest rate margin; and • As it changes the value of the earning assets; or putting it in another perspective, as it changes the Value-at-Risk of earning assets.
FDB manages its Interest rate risk through investing its surplus funds in other banks and financial institutions, loan pricing, and deposit pricing.
Market risk analysis is focused on the contemplated term of borrowing, which is then expressed by the rate offers of the Bond or Promissory Note buyers. Corollary to the term structure of interest rate defined by the financial market (investors or lenders), the bank further consider the impact of such rates to its overall cost of funds. To achieve this, the banks determines a benchmark on its weighted average cost of funds and stress this benchmark by simulating different rate levels which the market may tender, when the bank makes its offering.
Anent to overall cost of borrowings, the bank re-calibrates its interest rate margin, which is the difference between the average interest yield of earning assets and the projected weighted average cost of funds. To cure the probable risk on margins, the bank uses the reference curve approach where the durated term of groups of earning assets is matched with the durated term of group of fund sources. By matching the durated term and yield of earning assets with specific durated term and cost of borrowings, the target margin is often achieved under normal conditions. While the bank’s assets are of longer term maturities, they are repriced after a certain period thereby enabling the bank to change its pricing structure and protecting its target interest margins. 60 Fiji Development Bank and its Subsidiary Company Notes to and Forming Part of the Financial Statements For the Year Ended 30 June 2010 (con’t)
21 risK MANAGEMENT POLICY (con’t) The volatility of market interest rates impacts the value of the bank’s earning assets (also known as Value-at-Risk). While loan assets carry a repricing provision, they are committed for a fixed and long term, thereby making the asset structure immobile for probable contraction when warranted.
Given these conditionalities, the bank forecasts the probable market interest rates and measures its value-at-risk on its assets under the forecasted conditions. Historical V-a-R is used to determine the relative depletion of asset value at existing conditions. Forecasted V-a-R is then computed base on simulated conditions, integrating thereto the other risk variables that would impact the value at risk. The value-at-risk is analyzed base on “likelihood to happen” (very low, low, medium, high and very high) and the respective consequences of each likelihood which is then measured in terms of probable losses (dollar values – quantitative; and reputational impact - qualitative).
sensitiVITY ANALYSIS market Risk
Market risk sensitivity due to ± 2.50% fluctuation in weighted average lending rate
As at June Increase in Decrease in 2010 Lending Rate Lending Rate (+2.50%) (-2.50%)
Weighted Average Lending Rate (%) 8.88 11.38 6.38 Interest Income ($) 30,363,558 38,911,857 21,815,259 Profit/(loss) ($) 2,357,608 10,905,907 (6,190,691)
operational RISK
Operational Risk is defined as the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. This definition includes legal risk but excludes strategic and reputational risk.
The Business & Risk Services Division, through its Portfolio Management Process & Procedure Unit develops the policies governing the operations of the Bank. The Internal Audit Department oversees the implementation of these policies and procedures across the organization. A more recent development is the application of Risk Base Audit in contrast with the traditional audit approach where compliance is the focus.
Most operational risks are best managed within the departments in which they arise. However, overall planning, coordination, and monitoring should be provided by a centralized operational risk management department. This should closely coordinate with market risk and credit risk management departments within an overall enterprise risk management framework. Fiji Development Bank and its Subsidiary Company 61 Notes to and Forming Part of the Financial Statements For the Year Ended 30 June 2010 (con’t)
22 maturity ANALYSIS
The following analysis of monetary assets and liabilities is based on contractual terms. The majority of longer term loans are variable rate products.
2010 CONSOLIDATED (‘000)
At call 1 day to 3 Over 3 Over 1 year Over 5 Specific months months to 1 to 5 years years provision Total year
Assets $’000 $’000 $’000 $’000 $’000 $’000 $’000
Cash 21,518 - - - - - 21,518
Loans 66,476 30,575 48,007 148,058 144,430 (38,650) 398,896
Total 87,994 30,575 48,007 148,058 144,430 (38,650) 420,414
Liabilities
Borrowings - 32,190 72,649 137,048 12,050 - 253,937
Total - 32,190 72,649 137,048 12,050 - 253,937
2009
Assets
Cash 33,267 - - - - - 33,267
Loans 26,464 37,540 75,617 146,484 147,153 (31,019) 402,239
Total 59,731 37,540 75,617 146,484 147,153 (31,019) 435,506
Liabilities
Borrowings - 35,652 77,682 148,133 23,098 - 284,565
Total - 35,652 77,682 148,133 23,098 - 284,565
62 Fiji Development Bank and its Subsidiary Company Notes to and Forming Part of the Financial Statements For the Year Ended 30 June 2010 (con’t)
23 impaired AND PAST-DUE ASSETS THE BANK 2010 2009
Non-accrual loans without individual assessed allowance
Gross 12,407,687 11,485,187 Less: suspended debt (2,166,303) (1,309,223) Net non-accrual loans without individual assessed allowance 10,241,384 10,175,964
Non-accrual loans with individual assessed allowance
Gross 94,979,068 51,005,253 Less: suspended debt (27,929,370) (10,952,899) 67,049,698 40,052,354 Less: individual assessed allowance (30,929,356) (24,772,981) Net non-accrual loans with individual assessed allowance 36,120,342 15,279,373
Restructured loans without individual assessed allowance
Gross 134,639 288,646 Less: suspended debt (23,082) (34,905)
Net restructured loans without individual assessed allowance 111,557 253,741
Restructured loans with individual assessed allowance
Gross 5,785,881 5,401,106 Less: suspended debt (1,801,965) (1,428,301) 3,983,916 3,972,805 Less: individual assessed allowance (2,871,041) (2,201,664)
Net restructured loans with individual assessed allowance 1,112,875 1,7 71,141
Other impaired loans
Gross 3,967,822 7,212,006 Less: suspended debt (186,382) (31,176)
Net other classified loans 3,781,440 7,180,830
Total impaired and past-due loans 51,367,598 34,661,049
Past-due loans
Gross 23,829,621 21,136,941 Less: suspended debt (213,280) (550,275) Total past-due loans 23,616,341 20,586,665 Fiji Development Bank and its Subsidiary Company 63 Notes to and Forming Part of the Financial Statements For the Year Ended 30 June 2010 (con’t)
24 notes TO THE STATEMENT OF CASH FLOWS
(i) Reconciliation of cash
For the purposes of the statement of cash flows, cash includes cash on hand and other amounts which are integral to the cash management function and which are not subject to a term facility.
CONSOLIDATED 2010 2009 $ $
Cash 21,556,022 33,267,104
(ii) Reconciliation of operating profit after income tax to net cash provided by operating activities
Operating profit after income tax 2,351,897 3,492,887
Add / (less) non-cash items: Amortisation of bond discounts 47,637 52,349 Depreciation 829,491 765,198 Gain on disposal of fixed assets (24,684) (52,147) Accrual for annual and long-service leave 245,078 80,260 Allowance for credit impairment 6,592,440 14,676,258 Provision for dimunition in investment - 1,520,000 10,041,859 20,534,805 Change in assets and liabilities: (Increase) in interest receivable (5,122,916) (42,845) Decrease/(Increase) in accounts receivable 168,487 (496,956) Increase/(Decrease) in grants and subsidies receivable (1,236,464) 2,447,971 Increase/(decrease) in interest payable 388,920 (774,537) Decrease/(Increase) in other accruals (2,186,168) 1,641,455 Net cash from operating activities 2,053,718 23,309,893 64 Fiji Development Bank and its Subsidiary Company Notes to and Forming Part of the Financial Statements For the Year Ended 30 June 2010
25 comparatiVES
Where necessary, comparative information has been reclassified to achieve consistency in disclosure with current financial year amounts and other disclosures. Where this information is not available and impracticable to obtain, they are not disclosed.
26 principal ACTIVITIES
The principal activities of the Bank during the course of the financial year were providing finance, financial and advisory services to assist in the development of agriculture, commerce and industry in Fiji.
27 principal PLACE OF BUSINESS
The Bank’s head office is located at the Development Bank Centre, 360 Victoria Parade, Suva. Tha Bank also has nine branches located throughout Fiji. labasa
seaqaqa
savusavu Taveuni Nabouwalu
rakiraki
Ba lautoka
nadi nausori suva sigatoka
Ba Branch Nadi Branch Sigatoka Branch Varoka, Ba, FIJI. Main Street, Nadi, FIJI. Vunasalu Road, Sigatoka, FIJI. P.O Box 110, Ba, FIJI. P.O Box 1718, Nadi, FIJI. P.O Box 81, Sigatoka, FIJI. Ph: (679) 667 4211 Ph: (679) 670 1900 Ph: (679) 650 0122 Fax: (679) 667 4031 Fax: (679) 670 3552 Fax: (679) 652 0399
Labasa Branch Nausori Branch Rakiraki Branch Nasekula Road, Labasa, FIJI. 60 Main Street, Nausori, FIJI. Vaileka Parade, Rakiraki, FIJI. P.O Box 41, Labasa, FIJI. P.O.Box 317, Nausori, FIJI. P.O Box 82, Rakiraki, FIJI. Ph: (679) 881 1944 Ph: (679) 347 7277 Ph: (679) 669 4088 Fax: (679) 881 4009 Fax: (679) 340 0484 Fax: (679) 669 4784
Lautoka Branch Savusavu Branch * Taveuni Branch 38 Vitogo Parade, Lautoka, FIJI. Hugh Street, Savusavu, FIJI. MH Complex, Somosomo, Taveuni, FIJI. P.O Box 716, Lautoka, FIJI. P.O Box 42, Savusavu, FIJI. P.O. Box 215, Taveuni, FIJI. Ph: (679) 666 0639 Ph: (679) 885 0055 Ph: (679) 888 0084 Fax: (679) 666 5950 Fax: (679) 885 0629 Fax: (679) 888 0057
* Nabouwalu Branch Seaqaqa Branch * Opened in Octorber 2010. Government Station Road, Seaqaqa, FIJI. Nabouwalu, FIJI. P.O Box 62, Seaqaqa, FIJI. P.O. Box 51, Nabouwalu, Bua, FIJI. Ph: (679) 886 0166 Ph: (679) 828 0400 Fax: (679) 886 0168 Fax: (679) 828 0401 Head Office Development Bank Centre 360 Victoria Parade, Suva, FIJI. P.O. Box 104, Suva, FIJI. PH: (679) 3314 866 FX: (679) 3314 886 Email: [email protected] Website: www.fdb.com.fj
ID: Fiji Development Bank
ID: FDBFiji